By Gigi Wood of ForConstructionPros.com
Originally published August 8, 2024
Among the mid-year trends identified in the 2024 Marcum National Construction Survey is contractors diversifying their project portfolios to deal with inflation and other economic pressures.
"Some broad trends are evident in this year’s survey of construction industry leaders," the report stated. "Some are all too familiar, such as the ongoing struggle to find and retain skilled labor. Others show new approaches or opinions in the industry, like a significant portion of respondents seeking to broaden their scope of work to diversify their offerings."
While many factors play into contractors' sense of financial, such as politics and the ongoing labor shortage, overall the picture is positive.
"As you’ll see, an overall sense of optimism is tempered by plenty of nervous uncertainty," the report continued.
Marcum LLP is a national accounting and advisory services firm aimed at helping entrepreneurial, middle-market companies and in this report, its team suggests that construction contractors are not taking enough advantage of tax incentives, credits and other financial strategies.
Backlog is a theme throughout the report. Marcum officials said contractors reported healthy project backlogs, which is buoying much of the industry.
"In this year’s survey, 69% of respondents anticipated backlogs as good or better than the prior year, up from 68% in last year’s survey. Notably, the number of respondents expecting more opportunities in their respective regions over the next three years increased significantly from 37% to 49%, with only 17% expecting fewer opportunities, down from 26% in the prior year," the report stated.
Anirban Basu, Marcum's chief construction economist, said in the report that he is surprised by the remarkable resilience of the construction industry, especially in the face of the continued labor shortage and rising costs. He did caution against complacency, though.
"While it’s mostly good news for the construction sector and the broader economy, it is wise to emphasize the cautious in that cautious optimism," he said in the report. "History suggests that higher rates will eventually corrode growth. This could happen at any time, but I think it’s likely to be next year. Any slowdown will not affect mega projects, particularly those with federal funding, but it will likely affect other construction companies."
The report's key findings include:
- Optimism Tempered by Uncertainty: The survey reveals cautious optimism among construction industry leaders. While there is a general sense of confidence, it is balanced by concerns about economic and political uncertainties, particularly in an election year.
- Federal Funding Impact: The Infrastructure Investment and Jobs Act (IIJA), CHIPS Act, and Inflation Reduction Act are expected to fuel growth in the construction sector. Significant federal funding is earmarked for infrastructure, semiconductor manufacturing, and clean energy projects.
- Skilled Labor Shortage: The ongoing struggle to find and retain skilled labor remains a top concern for construction companies, with 29% of respondents citing it as the biggest threat to their business.
- Decline in Office Construction: The office construction market continues to slump due to permanent changes in the white-collar workspace, while healthcare, education, and renewable energy projects enjoy strong demand.
- Economic Resilience: Despite inflation and cost-of-living increases, the construction sector shows remarkable resilience with healthy backlogs and fewer bidders per job, indicating a strong demand for construction services.
- Cybersecurity Concerns: Cyber threats are growing in number and sophistication, making it crucial for construction companies to enhance their cybersecurity measures to protect against potential attacks. "While new tools like artificial intelligence may not be an obvious use case for construction companies, they have the power to improve operations and reduce costs. That said, the ugly side of technology is also ever-present, with cyber threats growing in both number and sophistication," the report stated. See Related: Prevention is Your First Tool in Cybersecurity.
- Financial Challenges: Higher interest rates and tightening credit conditions are causing project delays and cancellations, with 38% of respondents indicating that securing project financing has been a significant issue.
- Tax Incentives Underutilized: A significant number of construction companies are not taking full advantage of available tax incentives, with 37% of respondents not leveraging any of the eight tax incentives specified in the survey.
- Succession Planning: Nearly half (49%) of respondents indicated that succession planning is a priority, highlighting the importance of preparing for future leadership transitions.
- Changing Competitive Landscape: The number of bidders per project has significantly declined, with 65% of respondents facing just 1-4 bidders on average. This represents the first time Marcum survey respondents have reported such a low level of competition for projects.
"Our survey reveals that despite the challenges facing the construction industry, the overall outlook remains positive," said Joseph Natarelli, Marcum's national construction industry leader. "It was surprising to see how many construction companies and contractors leave money on the table by not utilizing valuable tax incentives and programs. I encourage leaders to explore those opportunities and those created by new technological advances to future-proof their business and brace for potential changes in the outlook."
Gigi Wood is Managing Editor at IRONMARKETS for the website ForConstructionPros.com and magazines Green Industry Pros, Rental Magazine, OEM Off-Highway, Supply & Demand Chain Executive, Food Logistics and Equipment Today. She coordinates online content for a +5 million audience on ForConstructionPros.com. She can be reached at gwoods@iron.markets.