Issue 50 – Fourth Quarter 2024
The construction industry maintains momentum despite significant challenges. While high interest rates have dampened investment in residential construction and certain nonresidential sectors, robust demand for manufacturing facilities and data centers has helped sustain the industry. The need for these facilities is so intense that even high interest rates have not meaningfully impacted investment levels. Contractors remain optimistic about the year ahead despite challenges from elevated borrowing costs and uncertainty surrounding immigration and trade policies.
The Good
Manufacturing Construction
Manufacturing-related construction spending, while relatively flat over the past several months, remains extraordinarily elevated. While this is largely due to massive investments in computer chip factories—spending in the computer/electronic manufacturing category is up 1,482% over the past four years—investment in new chemical and transportation equipment plants has also increased at a strong pace over the past several quarters.
The Strictly Okay
Healthcare Construction
Construction spending in the healthcare segment has hovered within a narrow range since early 2024 and, as of December, was down roughly 4% on a year-over-year basis. Spending on nursing homes and hospitals has increased at a fairly rapid clip over the past year, while spending on outpatient offices has fallen sharply from the all-time high established in early 2024.
The Bad
Residential Construction
Residential construction spending is up 6.0% over the past year, but that’s entirely due to renovation and repair work. Spending has actually declined on a year-over-year basis for new single-family (-0.8%) and multifamily (-10.5%) units. This is a direct result of high interest rates, which have blunted demand for homebuying and made financing difficult on large multifamily projects. With interest rates likely to remain elevated throughout 2025—most forecasters now anticipate just one 25 basis point cut this year—residential construction activity will continue to slow.
The Ugly
Interest Rates
Forecasters have significantly scaled back their interest rate predictions for 2025, now anticipating just one 25-basis-point cut compared to the four cuts expected in October 2024. This shift reflects rising inflation expectations, driven by both persistent price increases and projected upward pressure from potential tariffs, deregulation, and tax cuts. While the outlook is fluid—a few months of favorable inflation data or a sudden increase in unemployment could quickly alter interest rate expectations—it appears increasingly likely that rates will remain higher for longer.
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