Contractors remain cautiously optimistic in 2023

The Associated General Contractors of America and Sage Policy Group teamed to release their annual survey titled: “High Hopes for Public Funding Amid Workforce & Supply Chain Challenges.” Photo: Sundry Photography/ iStock / Getty Images Plus/Getty Images

Contractors are experiencing a range of emotions heading into 2023.

While there is plenty of optimism surrounding the public sector, contractors are largely bearish about the private sector. Firms hope to increase their headcounts in 2023, but many say they are still struggling to fill open positions.

This combination of optimism and caution was on full display in a recent survey the Associated General Contractors of America (AGC) and Sage Policy Group conducted. The survey, titled “High Hopes for Public Funding Amid Workforce & Supply Chain Challenges,” consisted of more than 1,000 responding firms nationwide.

Stephen Sandherr, AGC’s CEO, says public funding plays a large part in contractor confidence for the year ahead. Funding from the Infrastructure Investment & Jobs Act (IIJA) isn’t the only sort firms are looking forward to, though.

“Contractors have high hopes for public funding in 2023, even as they expect to cope with continued supply chain challenges and workforce shortages,” says Sandherr, whose organization’s survey results were publicized last month. “Many contractors hope to finally see the benefits of a flurry of new federal investments in infrastructure and construction. This includes funding from the [IIJA], the CHIPS (Creating Helpful Incentives to Produce Semiconductors) Act and the Inflation Reduction Act.”

Another funding boon in 2023 will likely come from state and local governments that boosted their construction budgets. Sandherr says the increases come due, in part, to a strong economy and COVID-related influxes of federal funds.

Still, several factors are driving contractors to feel more pessimistic about private-sector construction in 2023 versus a year ago.

Sandherr

“The changing outlook reflects the fact that higher interest rates and evolving work and shopping patterns are impacting office, retail, hospitality and multifamily residential demand,” Sandherr says. “The prospect of an economy that is slowing and perhaps heading into recession has dimmed the short-term outlook for warehouses, data centers and manufacturing plants.”

No matter what contractors are feeling, Sandherr anticipates headwinds from 2022 to carry into this year.

“Even as market demand evolves, contractors will continue to be confronted by many of the challenges they faced in 2022,” he says. “This includes the impacts of supply chain problems that have inflated the cost of many construction materials and delayed deliveries of those products. Contractors also expect to continue to struggle to find enough workers to keep pace with demand in 2023.”

Market expectations

According to the AGC-Sage Policy Group survey, the net reading – the percentage of respondents who expect the available dollar value of projects to expand compared to the percentage who expect it to shrink – is positive for 14 of the 17 categories of construction included in the survey. Infrastructure categories have the two highest net readings.

Bridge and highway construction and transportation projects each have a 42 percent net reading. Residing below those categories are water and sewer construction and federal projects with net readings of 38 and 37 percent, respectively.

Power projects and other health care (i.e., clinics, testing facilities, medical labs) each have net readings of 28 percent. Hospital projects and public buildings each have a 23 percent net reading, and K-12 schools and higher education construction each have a 16 percent net reading.

Manufacturing construction has a net reading of 14 percent, down from 27 percent last year, and data center construction has a 12 percent net reading – down from 31 percent in 2022.

Warehouses and other construction each have a 10 percent net reading. Last year, warehousing had a 41 percent net reading. Multifamily residential had the lowest positive net reading of the survey at 1 percent.

Categories with negative net readings are lodging (minus 4 percent), private office (minus 21 percent) and retail construction (minus 22 percent).

“Despite the largely positive net readings, respondents are less confident about growth prospects than they were a year ago,” says Ken Simonson, AGC’s chief economist. “For all but three project types, the net reading is less positive than in the 2022 survey.

The steepest downturn in expectations occurred with multifamily and warehouse construction, both of which recorded declines of 31 percentage points from the net readings in the 2022 survey. The outlook for lodging construction slipped from modestly positive a year ago to negative.”

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