The engineering and construction industry (E&C), which started strong in 2022, was then met with several headwinds, including rising costs and a shortage of labor. How can companies thrive in a volatile market? Our 2023 outlook examines five trends in the engineering and construction industries that can help businesses differentiate themselves and achieve growth.
As challenges and competition increase, driving growth is essential.
A closer look at the current market dynamics indicates that growth rates in 2023 are likely to be different across industry segments.
The non-residential sector will likely be buoyed on the one hand by the funds that are expected to enter the market through the Infrastructure Investment and Jobs Act and CHIPS and Science Act of 2020. Residential construction companies, on the other hand, are more pessimistic than different segments about the outlook of the industry for the coming year. While some features are more optimistic than others, headwinds, such as inflation and supply chain problems, may continue to impact the industry in the next year. Five key trends are explored in our 2023 outlook.
Construction economists do not sugarcoat their forecast for the industry in 2020. Equipment Leasing & Finance Foundation predicts slower economic growth next year and predicts weak equipment investment. Associated General Contractors and the Association of Equipment Manufacturers are also expecting moderate growth in the construction market. There are some bright spots, even though the picture is not the most rosy. Equipment sales are on a growth track.
Ken Simonson, the chief economist of AGC, predicts growth in multifamily, nonresidential, and public construction.
He said that the total growth in nonresidential construction expenditures, as reported in the Census Bureau’s ‘value placed in place’ monthly series, would be near the 2.2 percent annual increase for the first ten months of 2019, compared with January-October 2018. The best-performing segments for 2020 will likely include highway and road construction, transportation infrastructure — airports and transit — ports and railroads, and power and energy, including solar and wind.
Simonson believes that the weakest category of construction in 2020 will again be retail, with the exception being the retail component of mixed-use buildings such as office and airport terminals. Simonson believes that the lodging industry is in danger of slowing down due to an overbuilding trend or possible interest rate increases. Meanwhile, warehouse construction will shift from large distribution centers at the edge of metros to smaller structures at “last mile” or “click and collect” locations within metros. He added that these projects would be more expensive in terms of cost per square foot but not necessarily more overall.
ELFF’s 2020 Equipment Leasing & Finance U.S. Economic Outlook reports that the U.S. economic slowdown in 2019 will continue in 2020. The report states that “Overall, our expectation is for the economy to grow by 1.7 percent in the year 2020 (down slightly from the estimated 2.3 percent growth in 2019) while equipment and software investments will increase by 1.1 percent.
Sectors of Healthy Equipment
AGC’s Simonson responded that the highway, transit, and airports sector “has benefited from several years of state, local, and legislative approvals for gas tax increases or other revenue issues and bond issues.”
According to the American Road & Transportation Builders Association’s (ARTBA) annual economic forecast, the U.S. market for transportation infrastructure is expected to grow by at least five percent in 2020.