The Dodge Construction Network released its Quarterly Report for the third quarter of 2022. Informed by the latest data, insights and analytical commentary from the company’s economic and technological experts, the report highlights trends in the construction industry and provides analysis on what to expect on the road ahead.
The third quarter of 2022 presented both challenges and opportunities for the construction industry. Though economic pressures and labor shortages remain, an influx of U.S. government investment directed at addressing inflation and infrastructure represents a significant opportunity and a cause for industry optimism. Innovation throughout the sector is also providing new solutions by introducing and requiring more sustainable processes and outcomes for the industry as a whole with the goal to positively impact the next generation of construction leaders.
Defining Data
The Dodge Momentum Index (DMI), which tracks the overall health of nonresidential building projects, has yet to show signs of stress amid recession fears. However, month-to-month volatility is likely to remain for some time across the industry as challenges connected to pricing, politics and climate persist.
“Developers and owners remain confident that nonresidential building projects will weather the storm of higher interest rates and a slowing economy,” said Richard Branch, chief economist for Dodge Construction Network. “Whether this can be sustained remains a key question that will ultimately dictate the pattern for construction. Construction continues to improve despite the pressure created by higher interest rates and labor scarcity. However, the Federal Reserve will continue to aggressively raise interest rates until they feel that inflation is under control. This will create mounting pressure on building activity and potentially lead to a slowdown in construction starts by year-end.”
Nonbuilding construction starts rose 120% in July to a seasonally adjusted annual rate of $433.5 billion with the main driver of this growth coming from the utility and gas sector. On the nonresidential building side, starts rose an astonishing 79% in July to a seasonally adjusted annual rate of $530.5 billion. Manufacturing represented the main driver of growth for this sector largely due to four projects breaking ground that together totaled $17.9 billion.
In August, the commercial component of the DMI rose 1%, while the institutional component fell 5.6%. In spite of weak institutional planning activity, the DMI remained elevated in August, just a notch below July’s 14-year high. This indicates continued confidence from owners and developers that nonresidential building projects will be realized in the coming year.
In September, the DMI improved 5.7%, showing strength despite recession concerns. The commercial component of the DMI rose 2.9%, while the institutional component saw double-digit gain of 11.7%.
The gain in the DMI throughout the third quarter is reassuring news that owners and developers are looking beyond current economic concerns when it comes to moving forward with projects.
Utilizing Technologies in Construction
As economic conditions, including rising interest rates and labor shortages, impact construction, the construction industry is increasingly implementing technology solutions to complete projects on time and under budget.
Civil Quarterly
Managing the modern jobsite is nearly impossible without access to technology due to its ability to drive efficiency. In the third quarter, new data on civil engineers and contractors revealed where engagement is strongest with various technologies used onsite.
Nearly 80% of civil engineers see the highest value from site technologies used on their projects that help increase productivity, up from 56% in 2021. The improved ability to gather data on projects for analysis ranks as the second highest value (58%) for this group. The third leading priority for engineers, at 42%, is more detailed project data which leads to a better ability to manage the project schedule.
Measuring What Matters
Another report published in the third quarter highlights how tracking data-backed measurements and benchmarks is shown to be the most effective way to enhance site organization efforts. Site organization data plays a critical role in helping contractors address efficiency problems.
“A lack of efficient site organization practices can reduce productivity, generate more materials wastes, and increase worker safety risks,” said Dr. Donna Laquidara-Carr, industry insights research director at Dodge Construction Network. “This report demonstrates that data helps contractors to address those challenges by revealing better strategies for their site planning. Contractors armed with useful and actionable data will be more successful planning and staying ahead of the unexpected.”
Batching materials – setting up the crane for consecutive picks of the same load type and process – led to overall shorter cycle times. Across all construction build types, batching reduces cycle times by 20% to 30% on average. This type of technology adoption is critical amidst the labor shortage, as efficiency on the jobsite is paramount to completing work in a timely manner.
“We don’t talk a lot about productivity,” Branch said. “Productivity in construction has been slow to make gains. Mainly because construction is just beginning to take advantage of innovative technological trends. One area where investments could improve at all stages is investing in technology both on-site and in the back offices.”
Funding U.S. Innovation
From both the CHIPS Act and the Inflation Reduction Act, there has been a considerable increase in investment from the U.S. government to positively impact the construction economy.
On Aug. 9, 2022, President Biden signed the CHIPS and Science Act into law, seeking to support the U.S. semiconductor supply chain and promote research and development of advanced technologies throughout the country. The CHIPS and Science Act adds to the most popular provisions of the USICA and COMPETES Act and earmarks $52.7 billion for semiconductor incentives and $170 billion to authorize research and development programs across the sector.
“We haven’t seen the full impact of the CHIPS Act yet,” Branch said. “Those incentives will start hitting manufacturing plants in 2023 and 2024; much like the infrastructure funds, this money helps to address concerns around other building types connected to the U.S. infrastructure and chip fabrication plants. Many U.S. companies have projects in the planning cycle as a result of the $30 billion in hard construction costs that are in the planning process.”
As the United States works to bolster manufacturing, it is also ushering in the next generation of builders and innovators working in the sector. There are multiple provisions between these new laws encouraging, and in some cases requiring, diversity. As part of the Semiconductor Chips Bill, the Senate will confirm a diversity officer for the National Science Foundation and will allocate money toward minority-serving universities and improve STEM education in rural communities from pre-kindergarten to 12th grade. This effort is largely designed to help grow the future workforce in the United States funneling up into high-tech industries. Shifts like this serve to transform what many consider to be a job in construction into a construction career, and this is a critical step toward addressing the labor shortage in the sector in the long run.
The Rise of Sustainability in Construction
As the challenges connected to climate change mount and the face of the construction industry begins to reflect a shift in priorities from the industry’s decision makers, sustainability is starting to take center stage. Concrete building, a traditionally carbon-intensive material and process, is beginning to reflect this shift and awareness of concrete products with lower embodied carbon levels grows. There will continue to be a mounting trend to improve the impact of the building materials used in construction.
The Inflation Reduction Act, signed into law on Aug. 16, 2022, targets building an economy that creates jobs within several sectors of construction, growing the U.S. economy from the bottom up. Recognized by many as the most aggressive action on tackling the climate crisis in American history, the bill is designed to increase the volume of clean energy jobs and revitalize American manufacturing.
“The IRA’s focus on tax credits for renewable electricity and carbon capture will provide immediate benefit both for utility scale wind and solar as well as residential roof-top solar power,” Branch said. “Renovation/retrofitting could also stand to gain as older buildings are brought up to new environmental standards. The impacts of these credits should be felt in the very near term.”
Building Sustainably
Recent research from Dodge Construction Network found that 94% of engineers and contractors report clients are requesting reductions of embodied carbon on their projects. An increase in environmental, social and governance (ESG) disclosures on financial ratings have played a pivotal role in this change, and more than half (56%) of engineers and contractors report they work with owners with ESG commitments and nearly three quarters (73%) of them have observed an increase in the number of owners with these commitments in just the past year.
This shift in priorities from leadership is also joined by other stakeholders throughout the construction value chain. Data shows 81% of structural engineers and 69% of contractors working with concrete are tracking the embodied carbon on their projects – with one-third already actively reducing it.
“In all the research we conduct, owner engagement is incredibly important to bring the rest of the industry onboard,” Laquidara-Carr said. “Their commitment to reducing embodied carbon is perhaps the most important factor in helping the industry achieve that goal, and we expect those impacts to continue to grow.”
Existing tools used to reduce embodied carbon are also beginning to benefit from continued innovation. Environmental product declarations (EPDs) used to quantify the environmental impact of building products are on the rise. Findings from the report show nearly all (98%) engineers and contractors use EPDs on at least some of their projects, with over half (55%) using them on all projects, when possible.
Tracking the use of embodied carbon is a great step toward understanding where and how to reduce the use of it, but the industry also needs viable options for concrete products that involve lower carbon emissions in their production. Environmentally friendly concrete products are beginning to comprise a larger segment of the marketplace, according to the report. For example, carbon mineralization, used to reduce cement and associated carbon emissions, is already used by 41% of engineers and contractors. In addition, approaches like admixtures that replace diminishing materials/fly ash or that replace harmful chemicals are also emerging, with concrete products utilizing these approaches specified or purchased by about one quarter of engineers and contractors.
Looking Ahead
Over the last several years, construction has pivoted towards more sustainable products and building methods. The rapid adoption of technology leveraged to address climate change is helping to shift the expectation of the entire industry toward sustainability.
Success in today’s construction industry hinges on the ability and willingness to adapt to rapidly changing conditions. Social and economic pressures to adopt new solutions emerge daily, and the construction ecosystem must become increasingly connected to weather both current and future storms.
‘‘Overall, the industry remains very resilient, despite what seems like a tidal wave against the sector in terms of material prices, labor shortages and what appear to be higher interest rates and a slower economy,” Branch said. “Near-term, one thing that is reasonably unique is that everyone is counting on infrastructure dollars to provide stability. However, many dollars still need to be appropriated by Congress every year, which has become a slow and sticky process which could delay projects and creates a bit of uncertainty.”
The construction industry is poised to make great strides from an economic and technological standpoint with the emergence of government funding directed at promoting infrastructure and manufacturing here in the U.S. As the rising importance of sustainability continues to impact the type of innovation and technology in development, there is also an opportunity for the industry to attract the next generation of workers and address its age-old labor shortage.
The industry’s ability to seize these opportunities is connected to its decision makers and their ability to access and leverage the insight and data required to drive efficiency and productivity throughout each section of the construction value chain. As an injection of innovation and resources joins a changing set of values at the end of the third quarter, the future of construction remains bright heading into fourth quarter of 2022, the report concluded.