A possible recession looms large, even as contractors continue to report increases in business, said Anirban Basu, chief economist at Associated Builders and Contractors.
“Many contractors tell me they’re operating at full capacity, have never been busier,” said Basu. “What I conclude is, many [contractors] are gaining market share.” He suggested some contractors have gone out of business, or others have less bidding capacity. “But when you add up the numbers, you don’t see a lot of spending growth in this country.”
He presented his outlook during the webinar “2022 Mid-Year Construction Economic Update and Forecast Webinar” on July 27.
Non-residential construction spending has dropped 5.9% overall during the period corresponding with the timeframe of the COVID-19 pandemic between February 2020 and May 2022, according to the U.S. Census Bureau, particularly in the lodging and public safety categories, at -49.1%, and -39.2%, respectively. Manufacturing spending has risen 21.6% in the same time period, as the U.S. seeks to manufacture more goods stateside.
According to Basu’s analysis of the American Institute of Architects’ Architecture Billings Index, multifamily construction is still going strong, as mortgage rates rise and “prospective homebuyers are now firmly renters once again.” Commercial work is “fading pretty quickly,” as hotel and retail spending have struggled to rebound post pandemic. Institutional construction is “where you see the momentum,” said Basu, noting the American Rescue Plan Act signed last year by President Biden as instrumental in that development.
“Many economists would put the risk of recession in the next twelve months at less than 50%,” said Basu. “I am not one of them.” Basu cited the continuous rate raising by the Federal Reserve, done to combat inflation, as a key reason for his forecast. “We’ve had eight rate tightening cycles since the early 1980s. Now we’re in the ninth,” he said. “Six have ended in recession.”
Basu concluded that while a recession is unlikely to hit in 2022, “2023 is fraught with risk.”
Alisa Zevin is the economics editor for Engineering News-Record, covering economic issues within the construction industry, including construction economics and ENR’s quarterly cost reports. She is based in New York City.
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