In 2021, the U.S. rebounded from 2020’s short but devastating pandemic recession with the strongest economic growth in nearly forty years. In 2021, the nation’s gross domestic product (GDP) grew 5.7%, ending the year by with a quarterly expansion of 6.9%, according to the Commerce Department. During 2021, current-dollar GDP increased 10%, or $2.1 trillion, to a level of nearly $23 trillion, compared to a decrease of 2.2%, or about $480 billion, in 2020.
A major contributor to the economy is construction, which overall similarly rebounded with 9.3% growth in 2021. The rebound was uneven, however, driven primarily by residential construction spending.
The outlook for 2022 is even more positive, particularly for nonresidential, with significant and more balanced growth expected across this sector. If current trends continue, this positive outlook looks to accelerate in 2023. According to the AIA Construction Consensus Forecast Panel of leading economic forecasters, nonresidential building construction spending is expected to expand 5.4% in 2022 and strengthen to a 6.1% expansion in 2023.
Significant and well-known risks remain, however, notably supply chain disruption, inflation, labor challenges, and the lingering pandemic. As a result, the economy is expected to slow this year. The International Monetary Fund has forecasted U.S. GDP growth will slow to 4% in 2022. These risks also extend to the construction industry, producing higher costs and project delays.
“The last two years have become increasingly unpredictable, due in large part to the coronavirus and public officials’ varied reactions to it,” said Ken Simonson, the association’s chief economist. “But assuming current trends hold, 2022 should be a relatively strong year for the construction industry.”
2021 Construction Spending
U.S. put-in-place construction spending grew to a seasonally adjusted annual rate of $1.63 trillion in November 2021, the latest month for which data was available at the time this article was written. Year over year, total construction spending increased 9.3%. (Actual spending was $1.46 trillion as of November 2021, a year-over-year increase of 7.9%.) This growth was driven largely by a healthy residential market, whose value grew 16.1%.
Nonresidential construction spending, meanwhile, grew a modest 3.4% to a seasonally adjusted annual rate of $820.6 billion in November 2021 (though actual annual spending showed a decline of 3.8% from November 2020).
While private nonresidential construction grew 6.7% on a seasonally adjusted basis, public nonresidential construction contracted 0.8%. The top markets were the private commercial (+15.1%), private manufacturing (+22.4%), and public healthcare (+13.8%) markets. Losses were led by the public safety (-32.4%), private lodging (-30.7%), public commercial (-13.3%), and religious (-11.7%) markets.
Click here to see the data.
Architecture Billings Index
In January 2022, the American Institute of Architects (AIA) reported the December 2021 Architecture Billings Index (ABI) score was 52, an increase from 51 in November. While 6.5 points off the May score, which was the ABI’s 2022 peak, the December score ended the year on a high note, as any score over 50 indicates billings growth. In fact, the ABI remained above 50 since January 2021.
Despite a variety of concerns related to the omicron variant, labor shortages, and rising prices as well as limited availability of construction materials, architecture firms continued to report a robust supply of work in the pipeline. Inquiries into new work and the value of new design contracts both remained strong, and backlogs, at an average of 6.5 months, remained near their highest levels since the AIA began tracking this metric in 2010.
Regional averages: South (56.4); Midwest (51.0); West (47.5); and Northeast (45.3). Sector index breakdown: mixed practice (60.6); multi-family residential (49.2); commercial/industrial (49.2); and institutional (47.6). Project inquiries index: 66.8. Design contracts index: 55.8. (The regional and sector categories are calculated as a three-month moving average, whereas the national index, design contracts, and inquiries are monthly numbers.)
Dodge Momentum Index
Despite the lingering pandemic and low demand for certain types of nonresidential buildings, the Dodge Momentum Index had a banner year, increasing 23%, the strongest annual gain since 2005. Produced by Dodge Construction Network, this index is a monthly measure of the initial report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. Both the commercial and institutional components of the Momentum Index saw similar gains in 2021, with their levels of activity reaching 13- and 14-year highs, respectively.
In December 2021, the Momentum Index experienced a 3% dip to 166.4, down from the revised November reading of 170.7. Commercial planning fell 4%, and institutional planning slipped 1%. Regardless, the signals provided by the Dodge Momentum Index continue to suggest construction activity will improve in 2022, and that this growth will be more balanced than what was seen in 2021. The ongoing risks of the pandemic and tight labor force will work to counter these trends, however, according to Dodge.
Electrical industry confidence
Electrical industry business confidence was volatile but largely positive in 2021, falling below the expansionary score of 50 only once during the year (October). The National Electrical Manufacturers Association’s (NEMA) Electroindustry Business Conditions Index (EBCI) for current conditions in North America reached a record 89.5 in April 2021, reflecting broadly surging manufacturing activity. It ended 2021 on a positive note with a December score of 56.7, with manufacturers struggling with the muddled conditions of ample demand dampened by supply challenges.
Construction contractors expect increasing demand for numerous types of projects in 2022 despite ongoing supply chain and labor challenges, according to a survey by the Associated General Contractors of America and Sage. The findings are detailed in Expecting Growth While Coping with the Lingering Impacts of the Pandemic: The 2022 Construction Hiring & Business Outlook.
The percentage of respondents who expect a market segment to expand exceeds the percentage who expect it to contract—known as the net reading—in 15 of the 17 categories of projects included in the survey. Contractors are most optimistic about infrastructure, a group of market segments that all stand to see increased federal investments because of the recently passed Bipartisan Infrastructure bill. Contractors are also upbeat about demand for federal construction projects.
The highest expectations among predominantly private-sector categories, with a net reading of 41% each, are for warehouses and other healthcare facilities, which includes clinics, testing facilities, and medical labs. The outlook for hospital construction is also strong, with a net reading of 38%. Contractors were also optimistic about multifamily residential construction, with a net reading of 32%, and manufacturing construction, with a net reading of 27%.
Expectations were more subdued, however, for public buildings, with a net reading of 20%; kindergarten through 12th grade school construction, with a net reading of 19%; higher education facilities, with a 16% net reading; and lodging, with a 6% net reading. Only two categories received negative net readings, both of -8%: retail and private office construction.
“Contractors are, overall, very optimistic about the outlook for the construction industry in 2022,” said Stephen E. Sandherr, the association’s chief executive officer. “While contractors face challenges this year, most of those will be centered on the need to keep pace with growing demand for construction projects.”
AIA Consensus Forecast for 2022
Despite supply chain disruptions and the lingering pandemic, nonresidential building construction spending is expected to increase 5.4% in 2022, according to the AIA Consensus Construction Forecast Panel made up of leading economic forecasters. This spending is expected to accelerate to a 6.1% increase in 2023.
With a decline in construction spending on nonresidential buildings in 2021, few building types benefited from spending increases. In contrast, only the hotel, religious, and public safety sectors are expected to continue to decline in 2022.
By 2023, all the major commercial, industrial, and institutional categories are projected to see at least reasonably healthy gains.
“The pandemic, supply chain disruptions, growing inflation, labor shortages, and the potential passage of all or part of the Build Back Better legislation could have a dramatic impact on the construction sector this year,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “Challenges to the economy and the construction industry notwithstanding, the outlook for the nonresidential building market looks promising for this year and next.”
Click here to see each of the panelist’s projections.
|Retail & Other||+7.5%||+4.9%|
|Amusement & Recreation||+7.7%||+6.0%|