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Contractors are staying busy with infrastructure work as federal money continues to roll out. However, labor shortages and high inflation continue to strain the sector, and spending on transit projects and fossil fuels fell last year.
According to the US Census Bureau, total construction spending rose 14% from December 2022 to December 2023 in dollars (not adjusted for inflation), and non-residential spending rose 20%, driven by manufacturing jobs and infrastructure segments such as roads and waste.
“It doesn’t look like anyone is necessarily struggling in terms of activity,” said the Associated Builders and Contractors economist. Zachary Fritz. “Our expectation is that we’ll continue to see infrastructure spending hit the ground running, and you’ll see those projects move forward.”
Change in US infrastructure spending by sector
% change in non-residential construction spending from December 2022 to December 2022 2023
In addition to federal funding, infrastructure projects have benefited from a generally strong economy, said Ken Simonson, chief economist for the Associated General Contractors of America. Federal pandemic relief and healthy local government budgets boosted work.
“Even though the money didn’t go to construction, it allowed governments with balanced budget requirements to avoid cuts,” Simonson said.
Respondents to AGC Construction contracting and business outlook for 2024 predicted that infrastructure project opportunities will increase in 2024, with 32% expecting the value of water and sewer projects to be higher, 30% in transportation and bridge/road, 29% in federal projects and 25% in the electricity sector.
While most infrastructure works grew in 2023, spending on oil and gas as well as transit projects declined year over year. These sectors faced unique challenges.
Fossil fuel projects have had more difficulty secure funding as banks reduce their footprint in the sector. On the transit side, COVID-19 reduced ridership and revenue, and subway and light rail construction has experienced “somewhat of a delay” as a result, said Alison Black, senior vice president and economist head of the American Association of Highway and Transportation Builders. Still, more work is now being done on station terminals and on Amtrak’s Class 1 railroads.
Headwinds to the infrastructures
In AGC’s 2024 Outlook, 69% of respondents expect to increase their staffing and hiring over the next 12 months, although 55% believe it will be more difficult to recruit. Simonson noted that contractors are still struggling to customize their jobs, which is affecting work.
“Labor costs are definitely going up and projects can take longer if you only have 40 electricians and you need 100,” he said. “Some projects have been paused or scaled back or are taking longer than expected due to critical labor shortages.”
Projects were also hampered by shortages of materials, particularly switching transformers and other electrical equipment, Simonson said. And while inflation isn’t as bad as it was a few years ago, it hasn’t gone away, according to Black.
“Prices for some materials have moderated, but there’s still upward pressure on some different types of commodities. We’re not completely out of the woods yet,” Black said.
Regulatory and judicial review processes are also adding hurdles to federal funds being released to work, Simonson said. For example, Build America, Buy America regulations require certain materials to be produced domestically on federal projects, and contractors say it now takes longer to get a waiver.
“It’s risen to a much higher level than when you just go to the state federal highway office and say ‘here’s my evidence,'” which is the only one available, Simonson said.
More growth for some sectors
Recently, Fritz has seen increased activity in projects related to water, wastewater and waste disposal, and expects public power construction to begin in 2024.
“[Power projects] they usually take longer to plan and are more likely to be delayed,” he said.
As transit agencies continue to grapple with pandemic-related impacts, Marsia Geldert-Murphy, president of the American Society of Civil Engineers, said these projects are a key part of a growing focus on resilience and the sustainability of the infrastructures.
“Passenger rail and light rail is something that hasn’t [historically] We have seen significant funding, so we are seeing these projects move forward,” he said.
Geldert-Murphy is also experiencing increased activity in ports and inland waterways, as well as bridge projects, with IIJA $40 billion earmarked for that work. Now those dollars are turning into shovels on the ground.
“We are seeing great projects like the Brent Spence Bridge between Ohio and Kentucky and also the Hudson River Tunnel in New York get funding to get started,” Geldert-Murphy said.
