b"Construction Forecast 2024(sagepolicy.com). That impacts project financing. He Navigating a Tricky Economic Terrainnotes that the economy is still experiencing inflation pressures from energy prices, wages, and consumer By Phillip M. Perryspending. Basu sees something of a mixed bag for the industry. Heretofore, construction companies in all sectors have been busy. But I think what you'll see going Abstract: High interest rates and slower economicforward is that some contractors will get even busier growth will put increasing pressure on constructionwhile others will see their revenues begin to fade.and manufacturing in 2024. Contractors may experience disparate fortunes depending on theirThe future will be bright for those contractors aligned sector of operation. Robust housing activity, highwith mega projects in infrastructure and computer chip employment and optimistic consumers will dampenmanufacturing. The picture is less bright for other recession risk.contractors aligned to markets such as offices, hotels and shopping malls. We know we have many millions of Fasten your seat belts and enjoy the ride. Likesquare feet of distressed office inventory in this country airline travelers bracing for expected turbulence,that frustrates new construction, said Basu. Many the construction industry is preparing for a trickyowners of these office buildings are taking enormous operating environment in 2024. On the upside, thelosses on the value of their properties and are having to economy will continue to grow, although at arefinance their debts at a time when interest rates are high slower pace. Consumers and businesses are bothand bankers are reluctant to expose themselves to the feeling fairly optimistic, unemployment remainsvagaries of commercial real estate. low, capital investments are plugging along at a healthy pace, supply chains are improving, and theBattling inflation all-important housing market is burgeoning. Throwing cold water on the good times, though, isReports from the field confirm the economists readings. a significant downer that no one can control:Our members are experiencing a business slowdown, Higher interest rates established by the Federaldue largely to the effect of increasing interest rates, said Reserve to control inflation are putting a damperTom Palisin, Executive Director of The Manufacturers' on business activity. Economists are taking note byAssociation, a York, Pa.,-based regional employers' lowering expectations for the next 12 months.group with more than 370 member companies (mascpa.org). While businesses understand the need for higher interest rates, they nevertheless hope for early We expect real GDP to grow 1.4% in 2024, saidrelief. If inflation does not continue to drop, interest Bernard Yaros, Jr., Assistant Director andrates will have to be increased further, which will be a big Economist at Moodys Analytics (economy.com).problem, said Palisin. Thats slower than the 2.1% increase expected when 2023 numbers are finally tallied, and belowSo are the Federal Reserves efforts paying off? Theres the 2.0%-3.0% considered emblematic of normalsome good news here, as well as a sunny forecast. business growth. (Gross Domestic Product, theMoodys Analytics expects year-over-year consumer total value of the nations goods and services, is theprice inflation to average 3.2% when 2023 numbers are most commonly accepted measurement offinally tallied, down from over 6% a year earlier. economic growth. Real GDP adjusts forMoreover, the number should continue to drop until it inflation.)reaches the Feds target rate of 2% late in 2024. (These figures represent the core personal consumption Slowing economic activity will affect the bottomexpenditure deflator (PCED), which strips out food and line. Moodys Analytics expects a decline of 4.5%energy prices and is the Federal Reserves preferred in corporate profits for 2023 and only a modestmeasure of inflation). recovery of 0.3% in 2024.Indeed, Moodys Analytics believes the Fed will start to The construction sector will feel similar downwardlower interest rates around June of 2024, although more pressure. A major issue for construction is thatslowly than previously anticipated because of persistent inflation remains problematic and interest rates areinflation and ongoing labor market tightness. Cuts of likely to stay higher for longer, said Anirbanabout 25 basis points per quarter are expected over the Basu, Chairman & CEO of Sage Policy Group . next few years until the Federal Funds Rate reaches 2.75% by the fourth quarter of 2026 and 2.5% in 2027. (continued to page 11)"