Construction Contractors' Optimism Declines in 2023

Washington, DC, January 6, 2023-Construction contractors are less optimistic about many private-sector segments than they were a year ago, but their expectations for the public sector market have remained relatively bullish, according to survey results released by the Associated General Contractors of America and Sage. The findings are detailed in High Hopes for Public Sector Funding Amid Workforce and Supply Chain Challenges: The 2023 Construction Hiring & Business Outlook.

“Contractors are optimistic about the construction outlook for 2023, yet they are expecting very different market conditions for the coming year than what they experienced last year,” said Stephen E. Sandherr, the association's chief executive officer. “Even as market demand evolves, contractors will continue to be confronted by many of the challenges they faced in 2022, including the impacts of supply chain problems and labor shortages.”

The net reading-the percentage of respondents who expect the available dollar value of projects to expand compared to the percentage who expect it to shrink-is positive for 14 of the 17 categories of construction included in the survey. Respondents are most optimistic about infrastructure categories. There were net positive readings of 42% for both highway and bridge construction and transportation projects. Contractors are almost as upbeat about sewer and water construction, with a net reading of 38%. The net reading for federal projects is 37%.

Despite this optimism, only 5% of respondents say they have worked on new projects funded by the law, while 6% have won bids but have not started work. Five percent say they have bid on projects but have not won any awards yet, whereas 21% plan to bid on projects but say nothing suitable has been offered yet.

The highest expectations among predominantly private-sector categories, with net readings of 28% each, are for power projects and other healthcare, such as clinics, testing facilities and medical labs. There is also a generally positive outlook for hospital projects and public buildings, with net readings of 23% each. Contractors on balance were optimistic, as well, about the education sector. The net reading for both kindergarten-to-12th-grade schools and higher education construction is 16%.

The net reading for manufacturing construction is 14%, compared to 27% in the 2022 survey. The net is 12% for data centers, down from 31% a year ago, and 10% for warehouses, down from 41%. There is a net positive reading of 1% for multifamily residential construction. Expectations are bearish for lodging, with a net negative reading of -4%; private office, -21%; and retail construction, -22%.

Despite the largely positive net readings, respondents are less confident about growth prospects than they were a year ago. For all but three project types, the net reading is less positive than in the 2022 survey. The steepest downturn in expectations occurred with multifamily and warehouse construction, both of which recorded declines of 31 percentage points from the net readings in the 2022 survey. The outlook for lodging construction slipped from modestly positive a year ago to negative.

More than two-thirds of the respondents expect to add to their headcount, compared to only 11% who expect a decrease. While just under half of firms expect to increase their headcount by 10% or less, nearly one-quarter anticipate larger increases. Eighteen percent of respondents say their headcount will grow by 11% to 25%, and 5% of respondents anticipate an increase in headcount of more than 25%.

However, an overwhelming 80% report they are having a hard time filling some or all salaried or hourly craft positions, compared to only 8% who say they are having no difficulty. (The rest have no openings.) In addition, the majority-58%-of respondents says either hiring will continue to be hard or will become harder. Only 15% say it will become easier or remain easy to hire, while 27% expect no change.

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