Construction Industry Update: 2024 Trends, Challenges, and Opportunities

The US construction industry is navigating a complex landscape, where each segment faces unique challenges and opportunities.

From fluctuating growth rates to new technologies and shifts in the labor market, 2024 promises significant developments across the sector. Atradius Underwriter, Matt Nathan gave us an update on the industry. Other updates can be found on our construction industry landing page.

Sector Performance and Outlook

The industry is on track for growth, with a projected 6.6% increase in output in 2024 and a more moderate 2.0% in 2025. Public investment, an easing financial environment, and a strong labor market drive this growth. Non-residential and civil engineering sectors remain robust, supported by large-scale manufacturing projects and the federal Infrastructure Investment and Jobs Act.

Conversely, the residential construction segment faces a 2% contraction this year as high interest rates weaken demand. With falling rates, mortgage costs should ease, setting the stage for a 3% rebound in 2025. However, federal spending constraints could cool non-residential and civil engineering activity over the coming years.

Labor Shortages Persist

Labor shortages present a significant issue, as an aging workforce and limited numbers of new professionals entering the field widen the gap. Increased government investment in infrastructure could intensify competition for skilled labor, favoring larger builders who can offer higher wages and benefits. These wage increases may drive up project costs and impact profit margins, particularly for those with fixed-price contracts. Shortages in skilled labor could also prompt unqualified workers to fill roles, potentially compromising safety and delaying timelines.

Material Costs and Supply Chain Dynamics

Material prices remain elevated from pre-2022 levels, impacting input costs and squeezing margins, especially for smaller firms tied to fixed-price contracts. Larger firms, with greater resources and purchasing power, are generally better equipped to manage these increases. Supply chains, though largely improved post-COVID, could see new disruptions from regional conflicts or domestic port negotiations. Builders must maintain strong, diversified supplier relationships to mitigate these risks.

Technology Adoption: A Double-Edged Sword

To bridge labor gaps and boost efficiency, the industry continues investing in technology, from 3D printing and robotics to offsite prefabrication. Larger companies lead in this area, while smaller firms face budget constraints. Despite these limits, technology’s potential to modernize processes and cut costs could offset labor shortages and speed up project completion over time.

Sustainability Pressures

Construction accounts for 36% of global energy use and 40% of CO₂ emissions, attracting public pressure to adopt greener methods and materials. While financial incentives for reducing emissions remain limited, environmentally conscious innovations could provide a competitive edge to firms investing in sustainable practices.

Financial Health and Credit Risks

The sector’s financial health presents a mixed picture. Construction businesses rely on bank credit, and while banks continue lending, they have grown more cautious amid high interest rates. As a result, some firms face smaller credit lines or higher borrowing costs, though overall support from banks remains.

Working capital challenges persist for many firms due to high inventory and receivables, potentially straining liquidity if financing tightens. Long payment cycles, a common characteristic in construction, are likely to continue given high capital needs and rising borrowing costs. Insolvency rates have increased, but a stable outlook is expected. However, the solar construction segment may face higher credit risks due to regulatory changes and softened demand under high interest rates.

Opportunities and Challenges Ahead

The construction sector has multiple growth opportunities. Government-funded infrastructure projects are set to advance, while technological advancements promise cost savings and efficiency gains, easing labor shortages. Modernized construction methods are enhancing build quality and speed, giving firms a competitive edge.

However, significant challenges remain. Replacing skilled labor as older workers retire will be crucial, and political uncertainty—such as regulatory shifts and tariff changes—could create disruptions. Rising costs in materials, labor, and transportation may also pressurize profitability and cash flow. Finally, as interest rates ease, consolidation could increase, leading to acquisitions and more aggressive growth strategies within the industry.

Navigating the Future

As the construction sector evolves, adaptability and strategic resource management will be essential. By prioritizing efficiency, embracing technology, and adopting sustainable practices, companies can better position themselves to succeed amidst the sector’s opportunities and challenges.