Construction industry reports some improvement in market conditions despite slowdown

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A recent survey of regional construction firms by the Minneapolis Federal Reserve shows that better days may be ahead despite a broad slowdown in construction activity and falling revenue. The survey gathers input from construction firms across the region and construction sectors including, nonresidential/commercial, infrastructure, residential and industrial.

According to the Fed, firms that reported year-over-year worsening revenues outnumbered those reporting improving revenues. Many firms also reported significantly higher labor and material costs exceeding 5%.

Despite this, the share of firms reporting worsening revenues fell since the spring 2023 survey, as did the share reporting significantly higher costs. The residential sector reported the biggest improvement in firms expecting to see revenue increases.

When asked about revenue and profits compared to one year ago, 41% of the responses reflected that high construction costs and the inability of firms to pass those cost increases on to clients have led to flat or shrinking profits.

Price increases were similar across different sectors and different types of work. However, among respondents from the Twin Cities, there were significantly fewer firms that reported price increases — compared to the rest of the district.

According to the Fed, a Twin Cities plumbing supplier reported in the survey that manufacturers appear to be returning to the “standard once-a-year 3%-5% increase.” Most have halted the pandemic-era practice of twice-a-year price hikes, he added.

While on a snapshot basis, the reports don’t look great, by comparison, there is significant improvement in several areas compared to the previous survey. That could be why the industry remains mostly positive with a half of respondents saying they were optimistic about the next several months ahead.

The Minneapolis Fed and its partners surveyed the second half of April, receiving nearly 300 responses.