Manufacturing Investments Propel Construction Growth, Marcum 2023 Q4 Report Reveals

FEBRUARY 28, 2024 (New York City, NY) – The Marcum Commercial Construction Index for the fourth quarter of 2023 reports that the construction industry retained momentum through the year’s final quarter, capping off a year of surprisingly strong performance.

The index is produced by Marcum’s National Construction Services group.

The construction industry’s surprisingly strong performance in 2023 is largely attributable to manufacturing-related investment. “Manufacturing-related construction continued to surge in the fourth quarter, with spending in the segment rising another 5.2%,” said Anirban Basu, Marcum’s chief construction economist and author of the report. “Due to the Inflation Reduction Act, the CHIPS Act, and the private-sector desire to reshore capacity, spending in the category is up more than 186% over the past three years.”

Moderating input price escalation also served as a tailwind for the industry, especially in the latter parts of the year. “The tameness of commodities prices in 2023 was a welcome development for contractors, as input prices are still about 38% higher than at the start of the pandemic,” said Basu. “While global supply chain improvements are the biggest factor behind this moderation, sagging global demand has also helped.”

As a result of elevated construction activity, contractors continued to hire throughout the fourth quarter. “The construction industry added jobs for the tenth straight month in December,” said Basu. “Nonresidential hiring outpaced job growth on the residential side, as increased infrastructure outlays and manufacturing megaprojects bolstered demand for workers in the nonresidential building and heavy and civil engineering categories.

That hiring would have occurred at a faster pace if not for the ongoing labor shortages facing the industry. “The industry averaged 445,000 job openings per month from October to December of 2023,” said Basu. “That’s the highest quarterly level on record.”

Despite a strong quarter for the broader construction industry, the commercial segment struggled due to declining demand for warehouse space. “Commercial construction spending fell more than 2% during the fourth quarter of 2023 and increased just 1% over the entirety of the year,” said Basu. “That’s in nominal terms, so after accounting for inflation, investment in the segment actually declined in 2023.”

Over the next several quarters, all eyes turn to the Federal Reserve and the possibility of lower interest rates. “Heading into 2023, the most important question was ‘how high will the Fed raise rates, and how long will they keep them there?’” said Basu. “Entering 2024, the question is now ‘when will the Fed start cutting rates, and how fast will they fall?’”

Marcum’s national construction leader, Joseph Natarelli, said, “While we’ve witnessed significant growth driven by legislation and a resurgence in domestic production capacity, the commercial segment’s dip demonstrates the selective pressures at play. As we navigate a landscape filled with opportunities and headwinds, vigilance and adaptability are critical to the industry, especially considering the questions surrounding the Federal Reserve’s next moves. Keeping tabs on these economic levers will be essential in keeping the momentum going and steering through any volatility ahead.”

About Marcum Construction Services
Marcum LLP is one of the leading construction accounting firms in the U.S., providing audit, consulting, and taxation services to clients ranging from start-ups to multi-billion-dollar enterprises. Among the country’s foremost experts in construction accounting, Marcum’s construction professionals are frequent industry authors and speakers and serve as technical reviewers for the AICPA’s construction audit and taxation guides. Marcum’s construction group also publishes several definitive industry and presents an ongoing series of industry summits and technical webinars focused on the unique needs of construction contractors.

About Marcum LLP
Marcum LLP is a top-ranked national accounting and advisory firm dedicated to helping entrepreneurial, middle-market companies and high net worth individuals achieve their goals. Marcum’s industry-focused practices offer deep insight and specialized services to privately held and publicly registered companies, and nonprofit and social sector organizations. The Firm also provides a full complement of technology, wealth management, and executive search and staffing services. Headquartered in New York City, Marcum has offices in major business markets across the U.S. and select international locations. #AskMarcum.