Several major construction segments are expanding rapidly or are poised to do so shortly, even as rising interest rates and a cooling economy chill other categories. Broadly speaking, the changes should be favorable to demand for metal buildings and metal suppliers.
Shifts in construction spending should favor metal buildings and metal suppliers
Manufacturing plants are an especially strong niche. The U.S. Census Bureau reported on Dec. 1 that the value of plants started in October nearly tripled from October 2021, climbing 170%.
Several forces are providing a lift to manufacturing construction. Supply-chain disruptions from three years of Covid-related lockdowns, along with heightened risks from Russia’s attack on Ukraine and China’s belligerence toward Taiwan, have encouraged many companies to seek U.S. or nearby suppliers.
Three new federal laws are spurring more construction.
The federal government has provided both carrots (through legislation providing funding, tax credits and other incentives) and sticks such as the Build America Buy America Act, which requires the use of domestic construction materials and manufactured products for a wider range of projects. And many private owners are seeking to lower their carbon footprint by buying from modern, domestic suppliers.
Many private owners are seeking to lower their carbon footprint by buying from modern, domestic suppliers.
Three new federal laws are spurring more construction. Enactment of the Chips and Science Act in August added to already robust demand for advanced semiconductor fabrication plants or “fabs.” Passage of the Inflation Reduction Act the same month boosted demand for renewable energy production and the manufacturing facilities to support it, such as new plants to produce solar cells and panels.
The Infrastructure Investment and Jobs Act should spur both a variety of infrastructure investments and manufacturing plants to supply those projects. President Joe Biden signed the so-called Bipartisan Infrastructure Law in November 2021, and the White House marked the anniversary by stating on Nov. 15, “To date, the Administration has announced over $185 billion in funding and over 6,900 specific projects.”
It remains unclear how soon most of the money will turn into contract awards, as there are many regulations to be written and conditions to be clarified. But the Census Bureau has already reported substantial increases in spending on highways and streets (up 12% from October 2021 to October 2022), sewage and waste disposal (up 17%), and water supply (up 33%). These and other categories, such as transportation facilities, broadband communications, and alternative energy, will benefit further once the IIJA funds are awarded.
In addition to manufacturing, infrastructure, and alternative energy-related projects, at least one other niche has strong prospects in 2023. Data center construction, which has been hot for years, shows no sign of slowing.
However, the outlook has dimmed further for interest-rate sensitive projects. Those include multifamily, office, retail, warehouse and lodging construction. The office market is particularly stressed by a rising number of layoffs and resistance to returning to offices by many workers. These varied prospects for different construction segments mean contractors must stay alert for changes in regulations, project announcements, and cutbacks by private owners.
While a recession is possible for the overall economy, the construction segments that make the most use of metal and metal buildings appear to be in good shape to keep growing in 2023.
Ken Simonson has been the chief economist of the Associated General Contractors of America since 2001. His weekly summary of economic news relevant to construction, the Data DIGest, goes to 47,000 subscribers.