The beauty of the “economic train” is that when a given railcar is navigating a dodgy stretch of track, another glides forward on gleaming rails, supported by stout ties.
Nonresidential construction is on that sweet stretch today, even as other parts of the economy several cars ahead contend with the odd dry-rotted tie, rusty and somewhat worn-down track, etc. – the less optimal (but still serviceable) conditions inherent to Phase C, Slowing Growth. Nonresidential construction, which lags the macroeconomy, will get there, too, but for now, the majority of sectors covered in our Trends Report™ are either in Phase B, Accelerating Growth, or headed for it.
This is opportunity. That doesn’t mean that you, a furniture manufacturer, need to buy an excavator or cement truck and start over. It’s also probably too late in the game to drastically shift your product mix toward institutional-sector wares and away from residential pieces. What you can do is understand that the private nonresidential sector will be in cyclical rise through the majority of 2023 and marshal your resources and energies accordingly.
Reasons to go for it:
- For the majority of next year, the nonresidential construction sector will offer Phase B (the “best” phase of the business cycle) conditions superior to most other parts of the economy.
- The overall picture gets less rosy in 2024, at which point nonresidential construction will reach the less-secure section of track that the macroeconomy is navigating now. This should create a sense of urgency for your growth efforts. However, the degree of Phase C is likely to be somewhat cushioned by last year’s US Infrastructure Investment and Jobs Act and 2022’s Inflation Reduction Act.
- Rise in the nonresidential construction sector is coinciding with improvement in the global supply chain. This could amount to some easing of key constraints for your business. Keep in mind, however, that the supply improvement will vary greatly across inputs and may even be nonexistent for some for the time being.
Points of caution:
- Amid this ongoing and anticipated rise in nonresidential construction, margins will require scrupulous scrutiny. While US Private Nonresidential Construction, which is measured in dollars, is in Phase B, Accelerating Growth, it is likely that inflation is bolstering the numbers; i.e., activity measured in units is less robust.
- Nonresidential construction opportunities will vary greatly by state or region. ITR Economist Kyle Stevens gives a more comprehensive overview of regional opportunity in his November webinar, “Outlook for Nonresidential Construction in 2023 and Beyond.” The recording is available for subscribers to our Insider™ package.
- Nonresidential construction opportunity will also vary by sector. US Total Hospital Construction, for example, is less a part of the economic train than other nonresidential markets and will transition to Phase C, Slowing Growth, in the near term. US Education Construction, currently in Phase A, Recovery, is headed for Phase B, but declining residential construction and relatively tepid enrollment numbers may keep actual rise relatively muted.
The economic train is a key tenet of our leading indicator analysis. For more information on our methodology, please visit our methodology page. If you need help identifying markets of opportunity for 2023 and beyond, we can help.