Vermeulens has released its market outlook report for the third quarter of 2022. Key points include:
- Macro-economic conditions are shifting and affecting the residential construction sector. This gives nonresidential and infrastructure construction room to grow. The escalation ranges below depend on both local and general conditions for these sectors.
- Low-Range – 1.0% per quarter to midpoint assumes the Federal Reserve rate hikes will cool construction demand quickly and we return to historical construction escalation rates through to midpoint.
- Mid-Range – 1.5% per quarter to midpoint assumes the Federal Reserve rate hikes will take some time to cool construction demand and we will remain at above average construction escalation rates through to midpoint.
- High-Range – 2.0% per quarter to midpoint assumes the Federal Reserve rate hikes will not materially affect construction demand, even though they have cooled inflation in the economy. Construction escalation rates will remain high through to midpoint.
- Construction prices rose in Q2 and Q3 of 2022 at 0.75% per month.
- Supply chain shortages, labor shortages, and increased backlogs are impacting bid prices. However, the supply chain and fear of recession have reduced the cost impact of these factors.
- Fed Watch: The Federal Reserve has increased interest rates 0.75% in line with plans to continue increases in rates and continue to tighten quantitative measures.
- Architectural billings' growth declined from a high of 58 in March to 53.3 in August along with a fall in contracts. A rating above 50 means continued growth.
- Construction Dollar Volume: Residential construction growth slowed down in Q3; nonresidential construction is up 9.7% annually, and infrastructure spending increased 1.06% this quarter.
- Construction Job Growth: Approximately 51,000 construction jobs were added in Q3, or +0.67%; construction employment is now 1.25% above pre-pandemic levels.
- The New York Stock Exchange has dropped 17.62% from year over year.
- Growth in Employment: Monthly average job growth through Q3 was 352,000 peaking in July with 537,000 before falling to 315,000 in August.
- Gross Domestic Product: GDP dropped from Q1 2022 to Q2 2022 for the first time since the onset of the pandemic. GDP in Q2 2022 decreased by 0.6% in Q2, and Q3 estimates are a 2.6% increase in GDP.
- Commodities continue to put cost pressure on prices but show signs of moderating.
The complete Market Outlook Q3-2022 report is available from Vermeulens.