Construction Momentum and Development Remains Hot Going Into the 4th Quarter of 2021

Every economic indicator for construction tracked by Miles-McClellan indicates strong growth in the most recent quarter, and a strong likelihood of continued growth heading into the 4th quarter of 2021.

To get a read on commercial and industrial construction, Miles-McClellan looks at:

  • ABC Construction Backlog: Amount of commercial construction to be performed in coming months.
  • AIA Architectural Billing Index: The Architecture Billings Index is an economic indicator for nonresidential construction activity, with a lead time of approximately 9–12 months.
  • FMI Non-Residential Construction Index: This index is an indicator that provides a leading look into construction projects.
  • Dodge Momentum Index: A unique 12-month leading indicator of construction spending for nonresidential building.

Accelerating Growth and Demand in Construction
From the above publications, not only are all the indicators quite far into “growth” territory, they have all been accelerating on a quarterly basis. The Architectural Billing Index and Dodge Momentum Index decreased slightly in June but are still very far into growth territory.

Construction Outlook for Q4 2021 Going into 2022
Based on the reports, we believe that barring any unforeseen shock to the economy, construction demand will remain very strong in the coming quarters. Lowered costs of financing have allowed many projects that were previously delayed to get started, and many of the COVID-19 oriented constraints have started to ease.

As a result, overall growth remains strong, and the previous issues of bottlenecks have become less of a burden to the construction industry. The largest constraint to the construction industry continues to be labor shortages and escalated pricing.

Are We at Peak Construction Growth?
One question some may be asking is whether we have hit peak construction growth. Many of the indicators tracked within this report have hit highs not seen since before the 2008 financial crisis. Keep in mind, peak growth does not mean that a decline in the growth rate entails contraction, just that the rate of growth is not accelerating beyond the current pace.

Questions over peak growth stem from lingering COVID-19 bottlenecks, reduction in consumer confidence due to many of the consumer stimulus programs winding down, and anticipation of rising interest rates in the future as the economy recovers and government / central bank policies become less accommodative.

While we don’t know whether we’ve hit peak growth yet, the indicators we watch have a long lead time, and provide a lot of confidence that the environment should be in “growth” mode for some time to come. With that said, we may see growth level off or moderate a bit, which may not be a bad thing as we work through labor and material bottlenecks.