Building projects seem poised to continue growing despite higher interest rates and higher costs, but signs of growing unease appear in one industry survey.
The AIA/Deltek Architecture Billings Index (ABI) for June came in with a score of 50.1. This indicates continued slight billings growth at firms. This marked the first time the Index increased for two consecutive months since last fall. That said, growth in June was weaker than in May.
Inquiries into new work remained fairly strong, and while firm backlogs have decreased somewhat from their record-high levels in 2022, they remain robust, averaging 6.8 months.
That should translate into more building projects starting in the next few months. But contractors are growing more concerned about the near-term outlook.
Contractor confidence declined last month, according to the Construction Confidence Index from Associated Builders and Contractors. ABC chief economist Anirban Basu said the combination of expensive materials, high-interest rates, and tight credit conditions will put downward pressure on construction activity over the next few quarters.
Construction input prices remained unchanged in June compared to the previous month. Overall construction input prices are 4.9% lower than a year ago, while nonresidential construction input prices are 4.5% lower.
“The pandemic-induced period of rapid construction input cost increases is over,” Basu said.
Still, he said, construction input prices are still up more than 38% since the start of the pandemic.
Labor costs also remain high. Average hourly earnings for production and nonsupervisory employees in construction rose 5.7% year over the year in June, reaching $34.09 per hour.
Despite the higher costs, construction firms continue hiring. Nonresidential construction firms added 12,200 employees in June.
“There was no letup in demand for construction workers in June, while the supply of available workers remained exceptionally tight,” said Ken Simonson, chief economist of the Associated General Contractors of America. “Both residential and nonresidential construction are expanding despite concerns about overall economic growth and inflation.”
