FMI’s Q3 Outlook Forecasts More Growth for Contractors Ahead
Published on by Dan Holthaus in Construction
Construction consulting experts FMI released their third-quarter outlook for the construction industry, and as we look at where we’ve come and where we’re headed, 2024 presents an intriguing confluence of growth and challenges. Despite the heightened anticipation of a broader anticipated recession dangling over the U.S. economy, the construction industry is expected to maintain its upward trajectory, thanks to several key factors.
Single-family vs multifamily segments
The single-family residential segment, the industry’s backbone, is projected to flourish. This optimism is rooted in the anticipated end of anti-inflation interest rate hikes, creating a conducive environment for expansion. The ripple effect of this growth will stimulate demand in other construction sectors, further bolstering the industry.
However, the multifamily residential sector might face a slowdown in the coming years. The end of an accelerated building cycle might lead to a temporary slump in this segment, but the residential improvement sector is expected to register modest growth during the same period.
Legislation factors in
The Infrastructure Investment and Jobs Act (IIJA), Inflation Reduction Act (IRA), and CHIPS and Science Act will play a pivotal role in shaping the future of other building construction sectors. These legislations are set to drive near-term positivity, although some sectors might grapple with challenges in the later part of the forecast period. Even so, nonresidential building construction should see a steady annual growth rate of 1-3%.
Insights on infrastructure
Infrastructure construction holds promise as the industry’s shining star. Given the bipartisan support for policies favoring the built environment, it’s plausible that 2025 might continue to see favorable infrastructure investment, albeit at a potentially reduced scale. This clear funding scenario should provide a multi-year boost for nonbuilding structures.
In summary, although the construction industry’s growth rate might decelerate after a cumulative 40% expansion since 2020, certain segments and regions are expected to outperform. The revival of single-family residential construction is anticipated to fuel demand for other construction sectors and sustain industry expansion. Despite broader economic headwinds, this moderated growth rate could offer companies the window to tackle long-term industry challenges.
Key report takeaways
Looking at the U.S. specifically, the total engineering and construction spending is forecasted to rise by 6% in 2024. This aligns with the growth rate of approximately 6% in 2023. A majority of nonresidential segments are poised for robust growth in 2024, with nonbuilding structures leading the way.
Several sectors, such as manufacturing and public safety, are set to record strong investment growth in 2024, with year-end growth predicted to exceed 20% above 2023 levels. However, sectors sensitive to high interest rates, including multifamily, lodging and commercial, might experience a dip in 2024.
FMI expects sectors such as education, healthcare, transportation, communication and manufacturing to showcase short- and long-term stability and growth, driving opportunities over the next three years. Therefore, while 2024 might present its share of challenges, the construction industry’s outlook remains largely positive, underlined by the potential for growth and innovation.
Navigating the road ahead
The resilience of the construction industry lies in its ability to leverage insights and proactively steer through economic complexities. As industry dynamics continue to shift, construction stakeholders must chart a course that balances the challenges and opportunities presented. Strategic investments in technology, an understanding of economic forecasts, and an adaptive approach will be instrumental in navigating the road ahead.
Interpreting the trends
While the macroeconomic environment outside of the construction industry continues to be fluid, there are opportunities for contractors. Knowing where to position your company in the market can be crucial to success.
You might also be interested in our annual event with FMI – Building a Stronger Bottom Line through Labor Productivity. It’s available on-demand, and you can also download the slides. Our 2024 Construction Compensation & Benefits Study looks at regional data from contractors of all sizes – it’s a great tool for planning and can help you build a competitive advantage in a tight labor market.
If you’d like to talk about how these trends may impact your construction business, or want to find a better, more efficient process or improve your bottom-line business results, contact us for a free consultation with one of our top construction industry pros. As always, we’re here to help.
