The year began with a modest gross domestic product (GDP) growth of 1.4% in the first quarter. However, preliminary data for the second quarter reveals a significant improvement, with the GDP growing at an annualized rate of 2.8%.
A decline in home construction and high interest rates have led to fewer job openings in the construction industry during the first half of the year. This has brought employment levels back to pre-pandemic norms, indicative of a cooling labor market – a development that aligns with the Federal Reserve’s goal of reducing inflation toward the 2% target.
During the July Federal Open Market Committee (FOMC) meeting, the Fed announced they will maintain current interest rates, setting the stage for a potential rate cut later this year. Some markets have reported that certain projects remain on hold, awaiting more favorable conditions to enhance budgets and pro forma financial statements.
Overall, our markets experienced a price increase of just under 1% for the quarter. Material prices were mostly stable, with rising costs for copper, aluminum, and concrete balanced by decreasing prices for steel and diesel. Wage rates continue to rise, and the availability of skilled labor remains a significant challenge. This issue is compounded by large-scale projects nationwide that have drained a considerable portion of the labor pool, making it difficult for smaller and mid-sized projects to move forward.
The data center and semiconductor sectors showed strong activity this quarter, with healthcare, higher education, federal, and industrial sectors also contributing to the overall market balance.
We examine the ABI, the labor market deficit and the economic impact of sustainable construction practices in this issue’s Current Events.
Hear how JE Dunn’s expertise and innovative solutions can help you navigate economic changes and support your needs.
In this spotlight, Chris Migneron, National Design Director, discusses the benefits of integrating design services and how this approach enhances collaboration among architects, general contractors, and other stakeholders. He underscores how the integrated design approach preserves design integrity, aligns with owner visions, and facilitates more efficient project delivery.
The Architecture Billings Index (ABI) for April has risen to 48.3 from March’s 43.6, indicating billings are still on the decline across the industry.
The number of job openings in construction fell dramatically in the early part of 2024, with a 24% decline from February to March.
Sustainable construction, also known as green building, is revolutionizing the industry by prioritizing environmental impact and responsibility throughout a building’s lifecycle.
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As the construction industry increasingly prioritizes sustainability and efficiency, projects are becoming more complex, driven by technological advancements that are reshaping the design and construction of our built environment. The inherent complexity of these projects underscores the need for enhanced collaboration between architects and general contractors. Embracing an integrated approach that involves all project stakeholders – owners, designers, and general contractors – from the very beginning is crucial for optimizing project outcomes and achieving established goals.
With project costs rising and speed to market becoming more critical, efficient project delivery and cost certainty are more vital than ever. Establishing collaboration between designers and contractors from the outset enables streamlined project management, cost and schedule optimization, and quality assurance while bringing constructability perspectives to the design process. On the other hand, it also ensures someone on the construction side who understands the language and elements of design, eliminating the ‘us versus them’ mentality and establishing a collaborative partnership. This partnership improves communication and streamlines decision-making, ultimately delivering projects more efficiently and with fewer change orders. The end goal is to make sure the owner’s vision doesn’t get lost along the way, design integrity is preserved, and all stakeholders work together smoothly.
The JE Dunn Design Services Team includes architects, engineers, and design professionals with design experience across many building and project types. That design knowledge is balanced by a unique understanding of how we build at JE Dunn. This perspective allows our Design Services team to be unique advocates for design partners within our JE Dunn team, while also communicating preconstruction needs and priorities early in the design phase. Typically, those conversations happen much later in a project when much of the design has already been completed. This often results in costly redesign if there are budget, schedule, or procurement concerns. Our approach to this phase and the integration of our estimators, trade partners, and operators also creates a space for innovative design and construction solutions to emerge. Given the unique nature of the design process, it is helpful to have resources that can help reinforce accountability during this phase. Our design professionals create clear expectations for packaging, quality, and completeness of design. They help ensure that decisions are made that meet the schedule and needs of the design team while still satisfying the conditions of satisfaction of the owner.
JE Dunn Design Services evolve our role as a builder by creating a more seamless, efficient approach to the design process
Our design professionals are embedded in JE Dunn project teams and provide continuity from design into construction to make sure that the design intent is realized. Our team communicates the reasoning behind the design to our construction operators in the field. This allows the project to move forward without revisiting settled issues and creates consensus for achieving the vision of the design into construction.
Our focus is not to dictate what the design should be, but rather to inform the design decisions that the architect is making. We utilize the same tools and technologies like BIM (Revit) and augmented reality (AR) as the design teams to improve the collaboration between design and construction teams. While these tools facilitate integration from a shared data source, they still don’t cover the gap of how to interpret the design. They also don’t foster an understanding of the nature design process, which is very iterative in order to explore options and build consensus around the design decisions. JE Dunn’s design professionals can speak “design” to our design partners in a language that reinforces transparency, promotes understanding, and builds trust during the critical design phase. A positively engaged team pulling towards common project goals helps ensure the best outcomes and the realization of the design intent, on time, and on budget.
We focus our team on where they can bring the best value to owners and design partners. Our team is part of a suite of optimization partners that enable successful outcomes during the design phase of our projects. These resources include:
Our design professionals can bring in any of these partners to encourage the project team to take advantage of opportunities for innovation and efficiency during the design phase of a project. The production capabilities of our Design Services can also be a resource when needed to document design.
An integrated approach to project delivery has never been more critical in the industry with sustainable design and construction becoming an increasingly higher priority. The inescapable impacts of climate change are felt in different ways across the communities where we build.
The ongoing shift towards sustainable construction practices reflects a broader recognition of the industry’s impact on the environment. With the Architecture, Engineering, and Construction (AEC) industry accounting for 37% of global carbon dioxide emissions, we have a critically important role in the future of mitigating these impacts. The design side of the industry won’t achieve results on their own. Contractors will play a critical role in the realization of design goals with practical and achievable solutions that still meet budget, schedule, and sustainability requirements. JE Dunn has hired a sustainability director to drive better outcomes as a resource at the project level. This position will infuse sustainability strategy into JE Dunn’s Design Services team, evolving our best practices and driving innovation to provide design and building solutions that exceed clients’ expectations.
The Architecture Billings Index (ABI) for April has risen to 48.3 from March’s 43.6, indicating billings are still on the decline across the industry1. While we have not reached 50 since January 2023 and have not sustained a level above 50 for three consecutive months since September 2022, this situation is not unprecedented. Over the past 15 years, the ABI has not averaged higher than 54.3 in any year, with the peak being in 20212. However, this is not cause for alarm. The softness in billings reflects a market still awaiting a decrease in interest rates.
For nearly 20 years, the ABI has been a valuable leading indicator for construction spending. The Architecture Institute of America (AIA), the organization responsible for producing the ABI, gathers data used for the index by sending out the Work-on-the-Boards survey to architectural firms on the first business day of each month with the following questions:
The results are then aggregated into the national-level graph and split into regional and sector results. The AIA’s chief economist, Kermit Baker, has run regressions on the data and found that ABI trends can help predict nonresidential construction activity nine to 12 months into the future. Based on the ABI data that we’re seeing now, you might be wondering what does that mean for the next few months?
If all factors remain constant, and we run construction spending out into the next 10 months based on our ABI data, then we can expect the following trends shown in the graph below. This graph illustrates the year-over-year percentage change in construction spending.
While the projections may seem concerning, it is important to note that part of this is due to base effects. We’re comparing to a year (2022-2023) that experienced significant growth, and now we are coming off that exceptional level. Additionally, the current ABI does not account for potential changes outside the model. For example, the ABI is based on the current high interest rates, but we anticipate rates will decrease before the end of the year. Lowering rates is expected to boost demand across various sectors, including construction activity.
The number of job openings in construction fell dramatically in the early part of 2024, with a 24% decline from February to March. Despite this high volatility in the monthly numbers, a rolling three-month average of job openings indicates that the longer-term trend is still moving upward.
An increasing number of job openings indicates sustained high demand for construction positions. The shortage of skilled labor not only delays construction projects (or prevents them from starting), increases costs, and hampers future economic growth, but also makes sustainability goals that much harder to reach due to fewer workers being familiar with the latest technologies and installation techniques.
The industry lost a significant amount of experience during the pandemic when many older workers left the labor force and did not return. With an already aging workforce, conditions will likely deteriorate further before we see significant improvement. The National Center for Construction Education and Research (NCCER) estimates that at the current rate of workforce aging, the average age of construction workers will exceed 46 years by 20301. Additionally, wage growth has been hampered by inflation making construction salaries less attractive, especially considering the “premium” once paid for construction work compared to other similar skill-level jobs.
As the economy has shifted from an industrial basis to a more services-focused environment, many potential construction workers have opted for a four-year degree path, supported by the GI Bill, the proliferation of student loans, and a sentiment that construction jobs are less desirable than other options.
Efforts have been made to combat all three of these issues, with the primary push being school programs designed to draw students to the construction profession as an attractive and reliable career, particularly compared to the rising costs of college. TikTok influencers are touting the benefits of working in the construction industry as videos with the hashtag ‘construction’ have increased 74% on the application over the last three years2.
Videos using the hashtag ‘blue collar’ have soared by 156%, and ‘electrician’ content has jumped 72%3. These efforts are starting to pay off, as more of the Gen Z population is enrolling in trade schools across the country. Construction course enrollment at vocational schools increased 23% last year, reaching the highest level since tracking began in 20194.
Furthermore, these efforts to rebuild the labor pool will also help create a generation of workers that are more adept at building sustainably. Students today are being trained on new technologies that older workers did not learn when they started. While the experience of older workers is invaluable, they often need to learn new skills later in their careers when it is less convenient and appealing. Younger workers will have that training from the outset.
Sustainable construction, also known as green building, is revolutionizing the industry by prioritizing environmental impact and responsibility throughout a building’s lifecycle. This approach not only benefits the planet but also offers significant economic advantages for businesses, communities, and individuals.
According to Autodesk research, 82% of Architecture, Engineering & Construction (AEC) firms now have dedicated sustainability teams, with funding for sustainability practices at an all-time high. Large AEC firms are projected to spend an average of $4.5 million on improved workflows, regulatory compliance, and technology and software1. Industry groups like the American Institute of Architects (AIA) and the U.S. Green Building Council (USGBC) are driving a push towards sustainable design, encouraging architects to exercise their substantial buying power—140 times that of the average person—more sustainably.
One of the most compelling economic benefits of sustainable construction is its positive impact on building operation costs. Green buildings are designed to be energy and water efficient, which translates to lower utility bills for tenants and owners. Studies from the World Green Building Council have found that green buildings can reduce water consumption by up to 30% and cut carbon dioxide emissions by 35%. Leadership in Energy and Environmental Design (LEED)-certified buildings, a widely recognized green building standard, can achieve nearly 20% lower maintenance costs overall compared to conventional buildings. Additionally, green retrofits, the process of updating and upgrading existing buildings for sustainability, can significantly reduce operating costs within a year. Three-quarters of construction firms report that sustainability initiatives result in greater resource efficiency2.
The financial benefits extend beyond operational savings. Sustainable construction practices often incorporate recycled materials and implement more efficient building methods, which can lead to lower construction costs upfront. Furthermore, buildings constructed with sustainability in mind tend to have a higher market value. Owners report that sustainability-focused buildings have an increased asset value of over 9% as research indicates that green buildings can command higher rents and sale prices compared to their traditional counterparts3. This translates to increased asset value for owners and investors.
Green building practices also create jobs across various sectors, from manufacturing of sustainable materials to the construction and maintenance of green buildings. The USGBC reports that green construction can generate billions of dollars in gross domestic product and contribute to job creation in the millions4.
The positive economic ripple of sustainable construction extend even further. By reducing energy consumption, green buildings lessen the strain on power grids, potentially leading to lower overall energy costs for everyone. Additionally, sustainable construction practices contribute to a reduction in greenhouse gas emissions, mitigating the long-term economic costs associated with climate change.
Sustainable construction practices benefit both the environment and the economy. The AEC industry’s focus on sustainability underscores the real challenges in the race toward net-zero sustainability goals in construction. While the benefits to the planet and long-term asset value are significant, the initial costs and complexities make owners hesitant to pursue necessary changes. However, through transparency, efficiency, and innovative solutions, the industry is poised to meet these challenges, building a better and more sustainable future one building at a time.
