2022 Economy: How Long Will This Last?
During the last several years we’ve seen a global pandemic, wars overseas, inflation, lockdowns, and vaccine mandates. The construction industry has been reeling from skyrocketing commodity prices affecting their building projects. We just learned that the United States had a second quarter of GDP decline, signaling a technical recession, or at the very least a serious downturn in the economy.
Housing markets are high, and so are interest rates. Unsurprisingly, demand for housing is high as well. How does this affect construction? Residential construction is likely to remain a profitable industry for builders, but commercial construction should see a decline in the coming months. Commercial builders should exercise caution when taking on projects. Public contractors are actually reporting an increase in project spending due to increased infrastructure spending.
The Lasting Effects of COVID-19
Many parts of the world are still dealing with lingering waves of COVID-19, which has caused much of these production and material shortages. Even if COVID were eradicated tomorrow, it would take a long time to build up production capacity. We will likely see supply chain fluctuations into 2024, though some economists are predicting that these issues will persist well into 2025.
Comparing Now to 2021
Construction input prices are up 21.4% since last year. Non-residential construction prices are up 21.9% since this time last year. According to an ABC Report, even month-over-month construction prices are seeing an increase. Between April and May of this year, overall construction costs grew by 2.3%.
Goldman Sachs President John Waldron recently said “This is among — if not the most — complex, dynamic environments I’ve ever seen in my career…The confluence of the number of shocks to the system, to me, is unprecedented.”
The Good News
Once the United States economy gets through this supply chain and inflationary mess, it may come roaring back. U.S. households devote the smallest share of their income to interest payments now than any time in the last 40 years. There will be a half-decade of pent-up demand for housing and vehicles that should boost economic growth. If builders can weather this storm, they could see tremendous demand in the coming years.