The construction industry has faced some challenges and likely will have some barriers to cross in the new year. Early on, the industry’s future in 2023 looks pretty grim. Industry analysts expect a steep decline in nonresidential construction as the impending recession goes into full swing sometime next year.
Much of these effects are due to the impact of higher interest rates. Likewise, there is a subsequent reduction in spending across the board. And while most experts stop short of calling it a catastrophe, most agree that the construction industry is in for a rough period.
The Future of the Construction Trade in 2023
On paper, construction expenditure is increasing moderately, which is usually a good sign. However, costs are rising at an even faster rate, which indicates a decline in activity after considering inflation.
Some bright spots are on the horizon, most notably the employment upturn in the nonresidential sector. It applies to the building trade and specialty niches, which many feel are promising.
What do the Facts Say?
Even after considering employment figures and favorable industry outlooks, the overall picture is less encouraging. The 4% decline in activity over the past year is a sobering reminder that next year could be challenging.
The recession may hit around the latter part of 2023 or early 2024. While its occurrence isn’t certain, all signs indicate a potentially moderately severe recession. Many expect it to be worse than the one that struck in 2001. However, it may not be as bad as 2008 to 2009 financial disaster.
One thing that some businesses can look forward to is the possibility of being less affected than others. Depending on their microeconomic situation, some businesses might flourish during this period.
Will Commercial Construction Prevail?
As expected, the commercial sector will likely fare well, as it continues to dominate 21% of the nonresidential niche. This segment’s growth comprises retail establishments, bars and restaurants, warehouses, and wholesale infrastructure.
In 2023 and the following year, analysts predict that this market will continue to enjoy the growth it has experienced since 2020. Many of these conditions are due to the massive boom in online retail.
The power industry is a bit of a mixed bag. Power plants comprise the second largest sector in the nonresidential construction segment, and it has seen a 14% decline in spending over the past year. As the reliability of electric systems worsens in many states, there will likely be an upswing in spending over the next year.
If the recession does take place, signs of recovery may not appear until 2025. Business owners that wish to weather the storm would do well to plan contingencies for the sales downturn that will almost certainly occur.
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