The construction industry is one that has stood the test of time. Through highs and lows, the industry has survived based on its ability to acknowledge uncertainties, identify room for growth, and adapt to a constantly changing economic environment. As we enter 2024, the industry continues to demonstrate these qualities amidst a backdrop of financial challenges and promising prospects.
Still recovering from the economic impact of Covid-19, the construction industry faces numerous financial challenges. Inflation is among one of the top contributors to this problem. At a rate of about 3.5%, inflation is down from 2022, when rates hit 7%, but still significantly higher than the Fed’s 2% aim. This has led to the dramatic increase in the costs of both labor and supplies. According to a 2024 engineering and construction industry outlook report by Deloitte, labor wages have seen a 19% increase since 2019. This is in part driven by inflation, but also the result of labor shortages across the industry. According to American Builders and Contractors (ABC), the construction industry will need to hire approximately 501,000 additional workers in 2024 to ensure that labor capacity meets demand. In terms of supplies, Deloitte reports that the cost of project inputs has risen by approximately 40.7% since early 2020. Furthermore, there are still severe supply chain disruptions, increasing uncertainty and leading to extensive project delays. Increased costs have resulted in higher bids, as well as decreased project backlogs, with clients skeptical of bearing the risks that the industry faces.
Despite elevated levels of uncertainty, the construction industry is forecasted to grow in profitability in 2024. The year marks increased interest in nonresidential construction projects. According to the Census Bureau, manufacturing and infrastructure facilities are in high demand with both private (up 19%) and public investment (up 22%). 2023 saw an $81 billion increase in manufacturing revenue, with growth expected to continue in 2024. The year will be marked by the construction of new biotechnology labs, semiconductor plants, EV battery factories, and schools, among other projects. In addition, though inflation is still high, it has remained relatively stable over the past year. These trends are optimistic, signaling room for growth in the industry.
To thrive in this dynamic environment, construction companies must embrace innovative strategies and incorporate emerging technologies. The best way that companies can adapt to external uncertainties is to verify that their internal logistics are well organized and functioning smoothly, ready to respond to whatever the world may bring. One way to do this is to ensure that employees are equipped to handle their specific duties, while also remaining flexible to take on other roles as necessary. This can be achieved by allowing employees opportunities to gain cross-functional team training and experience.
Artificial intelligence can also be leveraged to automate tasks, improving the overall efficiency of a team. Increasing productivity is one of the fundamental ways in which companies can ensure the sustainable growth of their business. Further, early communication with subcontractors fosters a culture of transparency, allowing contractors to set realistic goals. These small changes can improve efficiency and directly reduce uncertainty for projects, thus ensuring on time project completion.
In summary, the construction industry faces significant financial challenges driven by inflation, labor shortages, and supply chain disruptions. Despite these obstacles, there are promising opportunities for growth, especially in nonresidential projects like manufacturing and infrastructure. To thrive in this dynamic landscape, construction firms must prioritize adaptability, innovation, and operational efficiency. Embracing technologies like AI and lean construction principles can enhance project delivery and mitigate uncertainties, positioning companies to navigate the complexities of the construction finance landscape and capitalize on emerging prospects for sustainable growth.