Construction Industry Outlook for 2024

Despite a sluggish start to the year, experts anticipate that forthcoming interest rate cuts in the latter half of the year will catapult several pending projects from planning to implementation, thereby fostering a gradual uptick in construction activity as the year unfolds.

However, until those anticipated rate cuts materialize, the construction sector may continue to face challenges. The Architecture Billings Index, a leading indicator of construction activity, has sustained a period of decline, marking its most prolonged downturn since 2010. Although, the pace of the decline has slowed, and the signs of improvement in the broader economy suggest a comeback is on the horizon.

Leading the charge in construction activity is the manufacturing sector, which saw a substantial 26% increase in starts in January following a remarkable 75% surge at the close of 2023, according to Dodge. Nonetheless, overall, nonresidential building starts experienced a 2% decline in January, reaching a seasonally adjusted annual rate of $483 billion. This dip was chiefly driven by a 14% decrease in commercial starts, encompassing retail, office, and warehouse projects, alongside a 1% decline in institutional starts, covering healthcare and education projects.

Over the 12-month period ending January 2024, nonresidential building starts contracted by 5%, with manufacturing starts declining by 20% and commercial starts plummeting by 10%, while institutional starts remained 9% higher.

Notably, nonbuilding starts, which encompass projects such as highway construction, street infrastructure, and environmental public works, continued their upward trajectory in January, registering a 9% increase to a seasonally adjusted annual rate of $280 billion. Environmental public works saw a significant surge of 38%, while highway and bridge construction improved by 9%. However, utility and gas plant activity experienced a notable decline of 35% in January.

For the 12 months ending January 2024, total nonbuilding starts surged by 17%, with highway and bridge starts up by 11%.

Despite a slow start to the year, expectations for the industry in 2024 are high, especially with the increase in public investment in construction in recent years. Baldwin CPAs is a full-service accounting firm that has been serving the construction industry for over 30 years. Our dedicated team of tax and audit professionals are here to provide you with the guidance you need to grow your firm, regardless of the economic climate. Contact us today to get started.