Brett Williams
President
Construction
Navigating the New Political Landscape: What’s Next for Our Industry?
The 2024 election has concluded, ushering in a new era of political leadership. As we transition to a new presidential administration, our industry faces both opportunities and challenges. While many questions remain, we can begin to analyze potential impacts on our sector.
Historically, Republican administrations have favored deregulation, which could streamline infrastructure project development. This potential easing of regulatory burdens may benefit our customers and accelerate project timelines.
However, we must also consider potential economic headwinds:
- Implementing tariffs — a campaign priority — could increase construction material costs.
- Proposed immigration policies may further tighten an already constrained labor pool in our industry.
These factors could significantly impact project costs and timelines.
One certainty remains: the growing demand for power generation. This presents both a challenge and an opportunity for our customers. In this quarter's update, Chris Ruckman and Charles Clinton provide insights on potential power generation sources and strategies to navigate this surge in demand.
As the new administration takes shape, we'll closely monitor policy developments and their potential impacts on our industry. We're committed to keeping you informed and helping you navigate these changes.
Thanks for reading and stay safe.
Economic Outlook
Although the Federal Reserve cut interest rates for a second time in November, we’re not seeing — or expecting — a wave of new projects as we close out the year. Here’s why:
- Construction is highly seasonal and tends to gear up in the summer and fall off from October through December.
- Lower short-term rates haven’t yet translated into lower long-term rates. To the contrary, the rate on the 10-year treasury rose throughout October (though still below its peak in April). Positive economic news seems to have changed market expectations on future interest rate cuts. Mortgage rates, which tend to follow the 10-year treasury, saw a similar upward move.
If long-term rates come down, we expect to see more projects moving forward in the beginning of 2025, especially given how many projects were delayed over the past year.
While interest rates get seemingly constant coverage in the news, they are just one economic variable. Other important indicators and trends, below, affect the economic forecast as well:
- The labor market remains strong, with low unemployment and high labor force participation.
- Wages have risen 4% over the previous 12 months, faster than inflation at 2.4%, which is good news for household finances. Consumer debt payments as a percentage of income are relatively low compared to historical levels.
- GDP growth has remained solid, with an annualized 2.7% increase in Q3 2024.
- With a 2.4% increase over the last year, the consumer price index is now below its long-term average.
Overall, these factors paint a positive picture for the economy heading into 2025.
Within the AEC industry, indicators are a bit more mixed. The AIA/Deltek Architectural Billings Index, FMI Nonresidential Construction Index and Manufacturing PMI all show levels consistent with industry contraction, while the ACEC Engineering Business Sentiment survey continues to show strong, positive sentiment.
BlogConstruction Outlook
Overall, nonresidential construction spending has been incredibly stable over the past year, with drops in commercial, office and highway/street offset by growth in manufacturing, transportation, data centers, sewer and water.
Office and Data Centers
- The office market (excluding data centers) has not bottomed out yet, falling from over $100 billion in early 2020 to $53 billion in September 2024. Engineering firms indicated a slightly positive outlook for the sector in the Q3 ACEC survey, the first positive reading since Q1 2022.
- Data center construction continues to grow, reaching a $29 billion annual rate in September 2024. Through the first half of 2024, Dodge reported that data center construction starts reached the highest level ever, with 78 projects breaking ground, totaling $9 billion in project value and almost 12 million square feet.
- While Virginia and Texas dominate the planning queue, there has been growth in other states over the past few months, including Ohio, Indiana and Illinois. Overall, Dodge is expecting 24% growth for data center construction starts in 2025.
Power
- Data centers and related load growth were far and away the top topic discussed by investor-owned utilities (IOUs) in their Q3 earnings, with several utilities and planning agencies updating their load forecasts.
- Private electric utility construction spending has been stable in 2024 but should increase in 2025. S&P Global projects that IOU capex spending in 2024 will be 9.5% higher than 2023, with an additional 5% increase in 2025.
- Public power spending — including cooperatives, the federal government and local governments — has increased 91% since January 2022 (inflation adjusted).
Infrastructure
Spending on water and sewer projects has trended upward since the beginning of 2023. This trend should continue as federal funds continue to be awarded and spent (Infrastructure Act funding goes through 2026). Federal spending should also boost highway and street spending, which is down 6% from the start of 2024.
Spotlight Power Play: Accelerating Delivery of a Data Center Facility