Construction firms have mixed outlook for 2024

Construction contractors have a decidedly mixed outlook for 2024 as firms predict transitions in demand for projects, the types of challenges they will face and the technologies, including artificial intelligence, they will embrace.

According to survey results from the Associated General Contractors of America and Sage, contractors are struggling to cope with significant labor shortages, the impacts of higher interest rates and input costs and a supply chain that, while better, is still far from normal.

“2024 offers a mixed bag for construction contractors: on one hand, demand for many types of projects should continue to expand and firms will continue to invest in the tools they need to be more efficient,” says AGC CEO Stephen E. Sandherr. “Meanwhile, they face significant challenges when it comes to finding workers, coping with rising costs and weathering the impacts of higher interest rates.”

According to AGC’s report, “A Construction Market in Transition: The 2024 Construction Hiring and Business Outlook,”, a smaller share of survey respondents expect the markets they compete in to expand in the coming year. The net reading decreased from the 2023 survey for nine project types, increased for six types, and remained unchanged for two.

The highest net positive reading in the 2024 survey—32 percent—is for water and sewer construction. That category surpassed last year’s leading segments: highway and bridge construction and transportation projects such as transit, rail and airports. 

The net reading for federal projects is 29 percent. The highest expectation among predominantly private-sector categories is for power projects, with a net reading of 25 percent. Close behind are the readings for hospital construction, with a net of 23 percent, and nonhospital healthcare facilities, such as clinics and medical labs, with a net of 22 percent.

The largest increase in optimism from the previous survey is for data center construction, with a net positive reading of 20 percent. That is up from 12 percent a year ago. Contractors are optimistic, as well, about the education sector. The net reading is 18 percent for kindergarten-to-12^th-grade schools and 15 percent for higher education construction. The net reading for both public buildings and manufacturing construction is 15 percent, while the net is 10 percent 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 percent for multifamily residential construction. Expectations are bearish for lodging, with a net negative reading of -3 percent; retail construction, -15 percent; and private office construction, -24 percent.

“On balance, contractors remain upbeat about the available dollar value of projects to bid on in 2024. But the optimism regarding opportunities for most project types is less widespread than it was a year ago,” says Ken Simonson, the AGC’s chief economist.

Simonson notes that more than two-thirds, or 69 percent, of respondents expect to add to their headcount, compared to only 10 percent who expect a decrease. While just under half, or 47 percent, of firms expect to increase their headcount by 10 percent or less, nearly one-quarter anticipate larger increases.

However, 77 percent of respondents report they are having a hard time filling some or all salaried or hourly craft positions. The majority, or 55 percent, expect that hiring will continue to be hard.

Most firms took steps in 2023 to attract and retain workers. Sixty-three percent increased base pay rates more than in 2022. Additionally, 25 percent of firms provided incentives or bonuses and 24 percent of the firms increased their portion of benefit contributions and/or improved employee benefits.

As in the past two surveys, nearly two-thirds of respondents say projects have been postponed or canceled. Almost equal percentages of firms report projects were postponed or canceled in 2023 and not rescheduled (36 percent), and 37 percent report projects were postponed but rescheduled. Ten percent have already experienced postponement or cancellation of a project that had been scheduled for the first half of 2024.

Only 23 percent of respondents say they have not had any significant supply chain problems. However, 64 percent noted that rising interest rates or financing costs are one of their biggest concerns for 2024, while 63 percent listed an insufficient supply of workers or subcontractors, and 62 percent are worried about the likelihood of an economic slowdown/recession. In addition, 58 percent listed rising direct labor costs (pay, benefits, employer taxes), while 56 percent picked worker quality and 54 percent listed materials costs as major concerns for the year.

Officials with Sage noted that construction firms have been seeking ways of adapting to the shortage of skilled workers and improving job site safety and productivity. Nearly 40 percent of firms say they will either increase their investment in drones or make an initial investment. Thirty percent of firms will make an initial investment in artificial intelligence or increase their investment, and almost 30 percent plan to make more use of offsite production.