2022 presented a host of challenges for the U.S. precast concrete manufacturing industry as higher interest rates, supply chain constraints, labor market challenges and geopolitical tensions created varying levels of turmoil coming out of the COVID-19 lockdown.
As 2023 progresses, many economists feel that inflation will drive the trajectory of the U.S. economy in 2023.
Among forecasters’ concerns for the new year are rapid monetary tightening, supply chain constraints, a tight labor market, escalating geopolitical tensions and the possibility of recession. However, many economists feel that inflation ultimately will drive the trajectory of the U.S. economy in 2023.
In an effort to rein in inflationary impacts, the Federal Reserve started aggressively raising interest rates in March 2022. Should these efforts be successful, rates could stabilize later this year. This would help the economy begin to recover in the later part of 2023.
According to Richard Branch, chief economist at Dodge Data and Analytics: “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.”
Still, Branch feels certain sectors will continue to outperform.
Manufacturing starts, which according to Dodge Data and Analytics were up 196% in 2022, are expected to slow but remain at historic highs in 2023 as U.S. companies, especially chip fabrication and EV battery operations, continue to shift production back to the United States to take advantage of incentives provided by the 2022 CHIPS and Science Act and the Inflation Reduction Act.
Public funding, primarily through the 2021 Infrastructure Investment and Jobs Act, also will support nonbuilding, infrastructure and public works projects. According to Dodge Data and Analytics, infrastructure and public works projects are expected to see the biggest gains in 2023 with forecasts for dams and reservoirs up 15%; water supply systems up 12%; sewage and waste up 17%; and nonbuilding and infrastructure starts up 16%.
However, the pace at which government-funded projects get into the queue is slowing.
“We also need to consider the fact that the appropriation process in Washington has slowed down,” Branch said. “There was a delay in getting the fiscal year 2022 funding approved. There already is a delay getting the fiscal year 2023 funding approved for infrastructure projects.”
Meanwhile, rising mortgage rates and slow economic growth could put a drag on the residential sector and parts of the commercial sector, specifically warehouses and office construction.
According to Dodge Data and Analytics, the residential market will experience a mild downturn with SFH starts and MFH starts expected to be down 6% and 9%, respectively. On a positive note, the single-family market can expect to see gains again in late 2023, and the multi-family market is expected to rebound in early 2024.
Starts in the institutional sector are expected to remain flat overall with year-over-year growth in health care construction and transportation projects, largely driven by multi-billion-dollar improvements at John F Kennedy
International Airport and some other terminal and runway projects.
Meeting production demand in 2023 will be a challenge as the industry works through an already volatile construction material supply chain.
Cement allocations and longer lead times will continue across the United States but are expected to improve toward the back half of the year. According to a commodity report from Linesight, a global construction consultancy, cement and concrete prices will remain close to current highs driven by elevated production and transportation costs.
A final thought as we look to 2023. According to Branch, total construction starts overall in 2022 rose by 17% and are expected to remain flat through 2023. These continued high levels are a relatively optimistic forecast for a period of anticipated economic stagnation.
Each quarter, NPCA Vice President of Marketing and Communications Tom Rodak takes a look at where the precast concrete industry is and where indicators show it is headed.