Construction outperformed many other industries in 2023. Going into 2024, it appears the sector will do well again overall—but with some significant changes.
Construction industry employment increased 2.5 percent from December 2022 to December 2023, outpacing the 1.7 percent gain in payroll jobs for the total nonfarm economy. Firms working mainly in nonresidential construction added workers at an even stronger 3.4 percent clip.
Those increases would doubtlessly have been even greater if contractors had been able to find enough qualified workers. However, job openings in construction continue to run at record levels, in contrast to the private sector, where openings have moderated from a year ago. There were 390,000 openings in construction as of Nov. 30, 2023, a 38 percent jump from a year earlier and the highest November total in the 24-year history of the Labor Department’s Job Openings and Labor Turnover series. That number substantially exceeded the 271,000 employees hired in construction during the entire month, implying that contractors wanted to bring on board at least twice as many workers as they were able to find.
Worker challenges
Finding workers seems sure to remain a major challenge for construction firms this year. The industry has always paid more than other sectors to attract and retain hourly craft workers. This “wage premium” averaged more than 21 percent from 2000 to 2019 relative to “production and nonsupervisory employees” in the overall private sector, according to data the Bureau of Labor Statistics includes in its monthly employment report. However, the premium shrank during the pandemic, when low-paying industries such as restaurants, delivery firms, and warehouses sharply raised starting pay.
Construction firms increased wages for this category of employees by 5.1 percent from December 2022 to December 2023, which was substantially more than the 4.3 percent increase for the private sector. Nevertheless, construction wages may have to rise even further in 2024. This is because many other jobs can now be done remotely or on a hybrid basis, with flexible hours, while construction jobs must still be performed on-site.
There were plenty of projects to keep workers busy in 2023. Spending on projects under construction in November totaled 11 percent more than a year earlier, the Census Bureau reported on Jan. 2. The increases were nearly universal across project types, with residential construction spending up 4 percent and nonresidential up 18 percent. The only exception among 16 nonresidential categories included in the bureau’s monthly release was a minimal 0.4 percent decrease in spending on conservation and development projects.
Contractors’ optimism for 2024 market segments
On balance, contractors appear optimistic for 2024 about most market segments, especially for infrastructure, federal, and power construction, judging by the results of an annual survey the Associated General Contractors of America (AGC), released Jan. 4, which drew nearly 1,300 responses. Respondents were asked whether they expect the dollar value of projects available to bid on in the coming year to be higher or lower than the year before.
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, as it was in the 2023 survey. However, a smaller share than previously expects the markets they compete in to expand in the coming year.
The highest net positive reading in the 2024 survey—32 percentage points—is for water and sewer construction, which had the third highest reading a year ago. Both of those categories have net positive readings of 30 in the 2024 survey. And the net reading for federal projects is 29.
The most widely held expectation for growth among predominantly private-sector categories is for power projects, with a net reading of 25. Close behind are the readings for hospital construction, with a net of 23, and nonhospital healthcare facilities (e.g. clinics, testing facilities, and medical labs), with a net of 22. The largest increase in optimism from the previous survey is for data center construction, with a net positive reading of 20, up from 12 percentage points a year ago.
Contractors are optimistic, as well, about the education sector. The net reading is 18 for elementary and secondary school construction and 15 for higher education. Three other segments have readings that are positive, on net, by double-digit percentages. The net reading is 15 for both public buildings and manufacturing construction and 10 for warehouses.
There are four market segments for which respondents are closely divided between favorable and unfavorable outlooks or have negative expectations on balance. There is a net positive reading of 4 for multifamily residential construction. Expectations are bearish for lodging, with a net negative reading of -3; retail construction, -15; and private office construction, -24.
Despite the largely positive net readings, fewer respondents are confident about growth prospects than they were a year ago. The net reading decreased from the 2023 survey for nine project types, increased for six types, and remained unchanged for two—hospitals and warehouses.
The steepest downturn in expectations occurred with transportation and bridge/highway construction, both of which recorded declines of 12 percentage points from the net readings in the 2023 survey. The net readings for public building and federal construction both slid 8 percentage points. In contrast, the largest upswing in net readings is 8 percentage points—for data center construction—while there were only small upturns for the other five categories that have higher net readings than a year ago.
While 2024 may not provide torrid growth opportunities for many contractors, the market should at least be temperate, not tepid. The major challenge in a post-pandemic environment is finding enough workers to complete the projects that contractors land.
Ken Simonson has been chief economist for the Associated General Contractors of America (AGC) since 2001. He provides insight into the economy and what it implies for construction and related industries through frequent media interviews, presentations, and the Data DIGest, his weekly one-page e-newsletter that goes to more than 20,000 subscribers. Simonson has more than 40 years of experience analyzing, advocating, and communicating about economic and tax issues.