By Anirban Basu, ABC’s Chief Economist
Despite high interest rates and tight lending standards, ongoing labor shortages, slumping activity in the retail, commercial, and multifamily segments, and relatively elevated materials prices, the construction industry has maintained a remarkable level of momentum through the first half of 2024.
Construction spending has increased more than 6% over the past year. While much of that growth can be traced to massive manufacturing projects and ongoing infrastructure investments, other segments, such as education and single-family housing, have also posted impressive performances.
That spending has fueled ongoing hiring from contractors. Nonresidential construction employment has expanded by 3.8% over the past year, a hiring rate over twice as fast as the broader economy. This hiring should persist through the remainder of 2024; over half of contractors intend to increase their staffing levels over the next six months, according to ABC’s Construction Confidence Index.
Michigan has added construction jobs at a rapid pace lately despite seeing anemic overall employment growth. Statewide employment in the industry is up 8.4% over the past twelve months, significantly outpacing the 0.9% increase in all statewide employment.
Some of that growth is due to base effects; Michigan lost a higher share of construction jobs between February 2020 and April 2020 than any other state, making recent hiring appear faster than it otherwise would.
Even with those initial job losses, Michigan’s construction industry has expanded disproportionately compared to the statewide economy. This is especially true in Western Michigan, where the construction workforce has grown 8.1% over the past year and 17.0% since the start of the pandemic, significantly outpacing overall job growth in Western Michigan (+0.3% year over year, +2.5% since the beginning of the pandemic).
This rapid hiring is driven by megaprojects like a $3 billion LG plant in Holland, a $600 million resin manufacturing plant in Muskegon, and a few other nine-figure clean energy projects.
While these projects will continue to keep contractors in Western Michigan busy over the next several quarters, the region’s lack of broader economic momentum poses cause for concern. Completing these megaprojects should support ancillary development—both due to supply chain effects and an expanded local employment base—and that should boost the demand for construction services.
Looking ahead, the industry has a few reasons for optimism. Construction materials prices decreased in May and June, the first monthly decline since December, and are up just 1.1% over the past year. This decrease is a welcome development, given that material prices have been up 40% since the start of the pandemic.
The past two months of economywide inflation data have also been encouraging, especially given the reacceleration in price increases observed during the first quarter of 2024. Most forecasters still expect one to two rate cuts over the duration of the year, with the first possibly occurring as early as the Federal Reserve’s September meeting. Lower rates will provide much-needed relief to contractors operating in borrowing cost-sensitive segments.
Anirban Basu is the Chairman & CEO of Sage Policy Group, Inc., an economic and policy consulting firm based in Baltimore, MD, with an office in Orlando, FL. The firm provides strategic analytical services to various sectors, including energy suppliers, law firms, medical systems, government agencies, and real estate developers.
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