The 2023 Dodge Construction Outlook from Dodge Data & Analytics, New York, predicts total U.S. construction starts will drop 3% to $1.08 trillion in 2023 when adjusted for inflation, according to constructiondive.com.
The report says commercial starts—such as retail, office, warehouse and hotel projects—will fall 13% in 2023 when adjusted for inflation, led by slowdowns in the warehouse and office sectors. Public funding will support manufacturing and infrastructure activity, but slow economic growth is expected to affect the residential and commercial sectors.
In a press release, Richard Branch, chief economist for Dodge Construction Network, said high interest rates have begun to affect key construction industry measurements; the Architecture Billings Index dropped significantly in October after 20 months of positive growth, and the Associated Builders and Contractors’ backlog indicator fell below its pre-pandemic reading from February 2020, largely because of a decline in the commercial and institutional category.
“The construction sector has already started to feel the impact of rising interest rates,” Branch said. “The Federal Reserve’s ongoing battle with inflation has raised concerns that a recession is imminent in the new year. Regardless of the label, the economy is slated to significantly slow, unemployment will edge higher and for parts of the construction sector, it will feel like a recession.”
Branch said certain sectors, such as data center construction and manufacturing, will continue to outperform. However, he also expects single-family starts to fall 5% in 2023 when adjusted for inflation.
Still, Branch believes any downturn will not be as disastrous as the Great Recession in 2008.
“The funds provided to the construction industry through the Infrastructure Investment and Jobs Act, the CHIPS and Science Act and the Inflation Reduction Act will counter the downturn, allowing the construction [industry] to tread water,” he said. “During the Great Recession, there was no place to find solace in construction activity—2023 will be quite different.”
