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The US construction industry has faced its share of challenges in recent years.
Construction costs are still close 40% more than in February 2020, before the start of the COVID-19 pandemic. Meanwhile, the labor shortage continues adversely affect the momentum of constructionaccording to a recent report from the Associated General Contractors of America.
Additionally, the Associated Builders and Contractors’ Construction Confidence Index shows that many U.S. contractors now expect profit margins to shrink over the next six months.
But despite these headwinds, the U.S. construction industry continues to show remarkable resilience compared to the rest of the world.
USA Project starts up 6% during the first eight months of the year compared to the same period in 2023, according to the Dodge Construction Network. The Dodge Momentum Index, a benchmark that measures nonresidential construction planning, also posted a 31% increase in August compared to the same period last year.
However, while US construction activity has remained strong, the same cannot be said for the world’s other major economies. Here’s how other nations’ construction industries have performed recently:
- China: China’s construction sector remains sluggish, with demand falling due to a slump in the property market and reduced infrastructure investment. according to Fastmarkets. The increase in public debt continues to burden the sector, resulting in fewer new projects and investments, reports the Wall Street Journal. Unlike the US, China’s interest rate cuts in September were aimed at stimulating a slowing economy, rather than stepping up the fight against inflation.
- Germany: The construction sector in Europe’s largest economy contracted again in August as housing and commercial projects fell sharply, according to a report from S&P Global. According to the report, builders remain pessimistic about the outlook for activity for the year, citing declining inventories, high construction costs and general concerns about the German economy.
- United Kingdom: The UK construction industry recently showed signs of recovery after a difficult start to 2024, Tim Moore, chief economist at S&P Global Market Intelligence, said in a recent S&P Global Report. However, the collapse of construction giant ISGone of the country’s largest construction companies, has expressed concerns about supply chain stability and smaller contractors.
- South Korea: Construction activity is currently experiencing a decline, reports The Korea Times. The slowdown has led to a sharp increase in jobless claims among construction workers, largely due to an increasingly pessimistic view of construction activity.
- New Zealand: About two-thirds of builders report lower demand for their services compared to the same time last year in New Zealand, according to a EBOSS builder sentiment report. According to the report, this is largely due to rising interest rates, rising material costs and a generally weak economy.
An increase in construction in the United States
Many of the factors that cause the construction slowdown in other nations, such as rising material costs and economic uncertainty, are also present in the US. In fact, some of these problems are even more pronounced in the states.
For example, the cost of construction in major US cities has skyrocketed, according to a International Construction Market Survey 2024 from Turner & Townsend, a global real estate and infrastructure consultancy based in the United Kingdom The report collects data from 91 markets worldwide.
“Six of the world’s 10 most expensive cities to build are in the US,” said Michael Hardman, vice president of the North America region at Turner & Townsend. “New York is the most expensive city in the world to build in, with San Francisco second. Los Angeles, Boston, Seattle and Chicago also make the Top 10.”
The 10 most expensive cities to build in the world
Average construction cost per square meter
However, construction spending has grown by more than 41% in the US from April 2020 to July 2024, according to ABC, an enviable increase for any region. This is largely due to the relative strength of the US economy after the pandemic, said Simon Rubinsohn, chief economist at the London-based Royal Institution of Chartered Surveyors, a global authority on building standards. .
“The US economy has been more resilient than others during and after the COVID-19 pandemic,” Hardman said. “Specific economic stimulus and energy autonomy have helped foster growth, improve productivity and moderate inflation compared to other economies.”
US construction spending up more than 41% since April 2020
Seasonally adjusted annual growth rate of the non-residential sector
Public money
Federal dollars have played a key role in maintaining construction momentum in the U.S., said Jose Luis Blanco, a senior partner at McKinsey, a global management consulting firm based in New York.
“When you think about the non-residential space, there’s been a significant increase in spending driven by some of the federal incentives,” Blanco said. “This has created a significant push for transportation, infrastructure, clean energy infrastructure and manufacturing.”
Such initiatives as the $1.2 trillion Infrastructure Investment and Jobs Act, the $369 billion Climate and Energy Inflation Reduction Act and the $52.7 billion CHIPS Act have channeled dollars towards the infrastructure and manufacturing sectors, fueling sustained construction activity.
“Federal funding has played an important role in the success of the U.S. construction industry in recent years,” Hardman said. “[It] has been a notable, and perhaps dominant, driver behind growth.”
Blanco said onshoring trends have also helped the U.S. construction industry outperform other countries.
“Companies have decided to rethink their footprint in terms of manufacturing facilities,” Blanco said. “That’s led to a lot of deals and it’s led to a boom, especially when you think about semiconductors, automotive, even life sciences.”
This momentum should continue following the Rate reduction of 0.5 percentage points by the Federal Reserve September 18 Construction executives said the move is likely to spur even more innovative projects.
The bending capacity
Another crucial factor is the regional flexibility of general contractors in the US
For example, many contractors have built their portfolios geographically, shifting focus to new emerging markets such as Miami; Austin, Texas; and Phoenix, according to Hardman. This is something that contractors in Europe, for example, may not be able to do easily across international borders.
“US contractors have diversified and shown flexibility in their approach to the construction industry and many have shifted their focus from their traditional markets and sectors to new markets and sectors,” Hardman said. “America’s largest contractors have started looking at smaller projects that they might not have considered before.”
Take Mycon General Contractors, a Dallas-based contractor. Recently progress has been made to the Tucson Rehabilitation Hospital in Arizonaits first construction job on the ground in the Arizona market. Minneapolis-based Adolfson & Peterson also shared expansion plans for central Texaswhere the contractor expects to nearly triple its revenue growth by 2024.
Blanco noted that technological innovation in construction, while light compared to the broader technology landscape, is another area where the United States continues to maintain an edge over its global counterparts.
“About 80% of the venture capital money that was being invested in construction innovation was being invested in the US,” Blanco said. “This means that innovations in new companies are being encouraged here. America has a head start because of where the investment money is actually going and where the innovation is happening.”
