This quarterly spotlight on the construction industry provides an in-depth analysis of current trends, capital spend and industry outlook, highlighting significant developments in funding, project scope, regulatory landscape and fleet transition to electrification.
Economics
In Q1 2024, real gross domestic product increased 1.6%, which was lower than expected, but is not by itself a cause for concern. While there has been talk that wage growth (4.1% over the last year) could contribute to inflation, wages have not been squeezing business margins overall. On the contrary, the rate of profit increased to 16.3% of value added in 2023, compared to 13.5% from 2010-2019.
Continued stickiness with inflation is largely due to housing, which accounted for 60% of the consumer price index’s (CPI) 3.5% increase over the last year (data through March 2024). Right now, high interest rates appear to be a barrier to housing prices coming down. Households that locked in mortgage rates of 3%-4% are hesitant to sell their house and take on a new mortgage at a 7% rate. The lack of housing supply has kept the homeowner vacancy rate below 1% — lower than at any time prior to the pandemic. Single-family housing construction has been trending upward, which will help the supply situation, but not immediately.
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Industry Outlook
Nonresidential construction spending has been relatively flat since November 2023. Construction spending on power has fallen over the past three months. Manufacturing has been mixed, with drop-offs in food/beverage and chemical offset by growth in computer/electronic/electrical and transportation equipment. The Institute for Supply Management’s Manufacturing PMI index rose to above 50% in March, the first time the index has signaled manufacturing expansion since September 2022.
Construction hiring and wages have been strong. The Federal Reserve’s Wage Tracker shows construction wages up 6.3% over the last 12 months. Labor availability and interest rates continue to challenge potential new projects.
While lead times have improved for many construction materials over the past year, extended lead times persist for transformers, switchgear and other electrical components.
Construction forecasts for 2024 show some divergence. FMI is forecasting a recession in 2024 but still expects nonresidential construction spending to grow by 9%. Dodge is predicting 6.7% growth in nonresidential construction starts in 2024, while ConstructConnect expects 3.3% growth (construction starts precede construction spending by about a year).
Zero-Emission Trucks
As with previous standards, new vehicle guidelines apply to all heavy‑duty vehicles in an automaker’s fleet, including cargo vans, buses and 18-wheelers, starting with the 2027 model year. Automakers could meet the standards with electric or fuel cell vehicles.
In addition to the federal guidelines, the Advanced Clean Trucks rule has been adopted by 11 states. Another seven states and Washington D.C. have signed a memorandum of understanding, (MOU), committing to advance the market for electric medium- and heavy-duty vehicles (see map).
Incentives for zero-emission vehicles and related infrastructure include:
- The federal government offers incentives such as tax credits for the purchase of electric or fuel cell commercial vehicles and alternative fuel infrastructure, grants for refueling infrastructure, and incentives that apply specifically to buses and port vehicles.
- 12 states have some type of clean truck incentive program.
- 22 utilities have programs that offer rebates or other incentives for charger installations.
The bulk of zero-emission truck (ZET) deployments have been smaller vehicles. Amazon is leading the way, having deployed over 10,000 electric cargo vans through June 2023, roughly 56% of total U.S. ZET deployments since 2017. California is the top state for deployments with 3,075 from 2017-June 2023 (Calstart). In 2022, 7.5% of trucks sold in the state (including light-duty) had zero emissions.
