Given the increases in both spending and investments seen this fall, skies may be clearing for the nonresidential construction sector. Recent data shows that contractors may start to see advancements in the planning of new projects: Reuters reported that private non-residential projects like gas and oil well drilling, for example, jumped 1.0%, and state and local government construction saw a 0.6% increase in spending and planning.
This progress is unexpected, given the overall decrease in industry-wide spending of 0.6% in the previous month.
But this development, however, is limited almost exclusively to the commercial sector. Reuters reported that while September brought drastic changes in nonresidential numbers, “investment in residential construction was down, with spending on single-family projects dropping 2.6%.”
Spending, in this situation, refers to the cost of labor, materials, architectural and engineering work, overhead costs, interest and taxes paid during construction, and contractors’ profits. Contractors involved in these nonresidential projects have seen benefits from the amount of spending in these areas — it means there is work to be done.
Planning, as it pertains to construction trend watches, includes breaking down the specific steps of a project, establishing key players in its completion, and assigning important tasks.
The Dodge Momentum Index, a tool used to measure nonresidential building planning, helps us understand what the planning surge means.
“The sustained upward trajectory in the Momentum Index shows optimism from owners and developers that projects will continue to move forward, even with rising concerns of an economic recession,” says Dodge Senior Economist Sarah Martin.
Further data demonstrates that nonresidential building planning increased a whopping 9.6% in October.
Buy America requirements could hurt infrastructure spending improvement
Unfortunately, not all nonresidential building sectors have seen recent improvements. Transportation infrastructure investments, though technically nonresidential, are not seeing improvement from previous months.
This could partially be due to recent updates of Buy America, an act governing purchases related to rail and road transportation.
Stephen E. Sandherr, the chief executive officer of Associated General Contractors of America, says that “Demand remains strong for a range of nonresidential construction segments despite supply chain challenges and rising interest rates. But transportation infrastructure investments would likely have been higher if it wasn’t for the inevitable regulatory confusion that comes with the new Buy America requirements.”
Sandherr, in this statement, is referring to the letter that came out on November 7, 2022, from Buy America that states: “For grants obligated on or after November 10, 2022, FTA [Federal Transit Administration] will add construction materials to the categories of products that must be manufactured in America on federally funded transit infrastructure projects.”
These new regulations could make it increasingly difficult for contractors to obtain materials during a time when the supply chain is already dwindling.
Requiring construction materials to be manufactured in the U.S. for federally funded infrastructure projects is a tall order, and contractors will have to jump through hoops to fulfill these demands. And there’s likely to be no shortage anytime soon of federally funded infrastructure projects due to Biden’s infrastructure bill, a $1 trillion allotment toward critical infrastructure.
Overall, it’s going to be hard for contractors to predict the future of the industry as things seem to be in a state of rapid flux. It will be increasingly important for professionals to familiarize themselves with mortgage rate volatility, as things could be looking up in the future, but it’s hard to say for sure. Knowledge of the supply chain’s progress will also be vital, as some contractors are being faced with shortages.
What we do know is that nonresidential construction projects are in demand, so as long as wrinkles in the supply chain can be ironed out to make Buy America’s rules easier to follow, there shouldn’t be a slowdown in work for that market.