The construction industry in 2024 was defined by strong fundamentals, marked by a 10% increase in nominal value added and a 12% increase in gross output. Construction spending crossed US$2 trillion and maintained a balanced trajectory in the first half of 2024. Despite facing a pervasive talent shortage, the sector’s employment level reached 8.3 million in July 2024, surpassing its previous peak of 7.7 million from 2006. This number has been increasing steadily for more than a year now. The Dodge Momentum Index (DMI), a measure of nonresidential building spending, has been on a steady rise in the second quarter of 2024,4 reflecting growing confidence in market conditions among owners and developers.
Nevertheless, the industry had its fair share of challenges. High interest rates and price inflation continued to affect the residential and commercial segments. The challenging lending market and ongoing weakness in billings of architecture firms are expected to continue through the year. However, construction investment, largely driven by government investments, and an expected decrease in interest rates may provide relief to the industry over the next few quarters.
Looking ahead to 2025, there are reasons to be optimistic. According to the Deloitte analysis of the Oxford Economic Model, short-term interest rates are likely to decrease gradually over the next couple of years, following a 50 basis point interest rate cut by the Federal Reserve in September 2024. The improving economic conditions are likely to influence construction demand across various segments. Declining mortgage rates could boost demand and residential construction activity. Government investments through the Infrastructure Investment and Jobs Act (IIJA), the Inflation Reduction Act (IRA), and the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act may continue to drive growth in segments such as manufacturing and energy.
Moreover, with the increasing uptake of artificial intelligence and advanced computing across industries, data center construction is also likely to gain steam. Overall, the US construction industry is likely to record moderate growth in the medium term with slowing inflation and a supportive monetary policy.
Source: Deloitte
