IN THIS ISSUE

MARCUM
Fourth Quarter Construction Update: The Good, The Bad, and The Ugly
Joe’s View

Commercial Construction Exhibit 1. Manufacturing-Related Construction Spending

Exhibit 2. Health Care-Related Construction Spending
Index Exhibit 3. Commercial-Related Construction Spending
Issue 43 | First Quarter 2023 Exhibit 4. Power-Related Construction Spending
Exhibit 5. Construction Employment Growth, 20 Largest
U.S. Metropolitan Areas, February 2020 v. April 2023
Exhibit 6. First Quarter 2023 Performance

First Quarter Construction Update: The Good, The Bad, and The Ugly
By Anirban Basu, Chief Construction Economist, Marcum llp

After a year of steady, albeit downbeat, economic

dynamics, conditions are beginning to change.
While many of the same challenges remain in
place, including inflation and labor shortages,
the construction industry now faces the
cumulative weight of ten consecutive interest
rate increases and tighter credit conditions due
to fallout from the banking crisis. Even as
inflation begins to subside, higher borrowing
costs and what many expect will be a
weakening macroeconomic environment
pose substantial risks to the construction
industry throughout the remainder of 2023.
The Good
Manufacturing-Related Construction
Manufacturing-related construction
continues to outpace all other segments
due to elevated reshoring activity and the
CHIPS Act. Spending in the segment is up
90.2% since the start of the pandemic and
accounted for the entire increase in non-
residential spending observed in March.
Given the scale and anticipated duration
of many of these large-scale projects,
the segment should retain momentum
through the remainder of the year.
Healthcare-Related Construction
Construction spending in the healthcare
segment surged starting in late 2021 but has
leveled off during the first quarter of 2023.
After achieving the highest level on record
in January, spending fell slightly in February
and March and currently sits just 0.1% off
the record high. Lead-times are critical for
health-care related construction given the
importance of timely delivery, and with supply
chains improving, the segment should retain
momentum through the remainder of the year.

www.marcumllp.com/construction 1
Joe’s View
After a mercifully muted winter, I’m
pleased to look out of my office Exhibit 1. Manufacturing-Related Construction Spending
over the Long Wharf waterfront in
New Haven, Connecticut, and see $160
Mar. 2023:
that summer has arrived. To say
$147.4B

Rate Annualized Rate

nothing of warmer weather, sunlight $140
that lasts into the evening is thrilling
after the short winter days that rob $120
a little of life’s luster. Alongside the $160
recent change in seasons, I’ve seen $100 Mar. 2023:

Adjusted
a parallel shift in the habits of family, $147.4B
$140
$80
friends, and co-workers. There’s

Annualized
more movement, more community $120

Seasonally
$60
events, and a lot more activity overall
– changes that have happened $100
$40

Adjusted
seemingly overnight.
$ Billions,
$80
$20
With an industry outlook reflecting
$ Billions, Seasonally

challenges across the board (with $60

$0
the possible exception of industrial
2002
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$40
and public projects), this seasonal
shift is a reminder of how quickly $20
things change. The FED is signaling
a potential pause in rate hikes, while $60Census
Source: U.S. $0 Bureau; Note: Seasonally Adjusted
social motivators could revitalize
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Rate Annualized Rate

$55 Mar. 2023:

downtowns in a way no return- Exhibit 2. Healthcare-Related Construction Spending $56.6B
to-office mandate could hope
to. As many days are dominated $50
by concerns over future costs, $60
$45
funding, and value, keep in mind that
Adjusted

optimism is available free of charge. $55 Mar. 2023:

$40 $56.6B
Annualized

$50
Seasonally

$35
Joseph Natarelli, cpa
National Construction Industry $45
$30
Adjusted

Group Leader, Marcum llp

$ Billions,

$40
$25
$ Billions, Seasonally

$35
$20
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$30

$25

$20
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Source: U.S. Census Bureau; Note: Seasonally Adjusted

The Bad
Commercial Construction
Commercial construction spending surged 53.3% 1 between the cyclical low point in August 2020
and the end of 2023, and that momentum was in large part due to an increase in construction
of warehouses and fulfillment centers (the Bureau of Economic Analysis defines commercial
construction as retail, food/beverage outlets, car dealerships and service centers, warehouses
1
and fulfillment centers, and farms). That momentum dissipated in the first quarter of 2023,
however, and spending in the segment has declined by 4.8% over the first three months of
the year. With interest rates elevated and credit conditions tightened by the banking crisis
that began in early March, commercial-related construction spending will likely soften over
the remainder of 2023.

www.marcumllp.com/construction 2
 Exhibit 3. Commercial-Related Construction Spending
this moderation is a welcome development,
$140
Mar. 2023:
input prices are still 39.0% higher than they
were in the month before the pandemic began,
$ Billions, Seasonally Adjusted Annualized Rate

$120 $125.4B
an increase approximately double the rate of
$100 economy-wide inflation.

$80 There’s reason for optimism regarding input

costs in the coming months. Global freight
$60 costs are approximately 86% lower than
their September 2021 peak, according to
$40
the Freightos Baltic Index, and surveys from
$20 purchasing managers indicate widespread
improvement in supply chains.
$0
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Many of the inputs that saw the largest price
increases during the pandemic have also
$160
Source: U.S. Census Bureau; Note: Seasonally Adjusted
started to see price declines. Softwood lumber
Mar. 2023: prices, for instance, are down 49.3% over
$ Billions, Seasonally Adjusted Annualized Rate

$140 $113.7B the past year and are just 19.3% higher than
Residential
$120
Construction has rebounded approximately 8.0%. Much during the month before the pandemic. Iron
Residential construction spending continues of that$140
rebound is due to increased federal and steel prices are still a staggering 63.9%
Mar. 2023:
$100
to buckle under the weight of elevated interest support for energy projects, as publicly above pre-pandemic levels but have fallen
$ Billions, Seasonally Adjusted Annualized Rate

$120 $125.4B
rates. As of March, residential construction funded power-related construction spending 13.8% over the past year.
$80
spending was down 9.8% year over year, is up 16.8%
$100 over the past year, while privately
and that$60
weakness was entirely confined to financed power-related spending is down In short, the worst of input price escalation
the single-family homebuilding segment. $80that span.
2.8% over appears to be firmly in the rearview, but the
$40
Spending on single-family units fell 0.8% in cost increases observed throughout 2021
March and $60 Prices
Materials
$20is down 22.9% year over year, while and the early parts of 2022 will remain a
spending on multi-family units has increased Construction input prices increased modestly headwind for contractors, raising the cost
$0 the past year. $40
23.0% over in March, up 0.2% according to the Bureau of of construction services and ultimately
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Labor Statistics’
$20 Producer Price Index, but are decreasing activity.
With the Federal Reserve just now raising the actually down 0.9% over the past year. While
federal funds rate to the highest level since $0
2007, mortgage rates will remain elevated for
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Exhibit 4. Power-Related Construction Spending
the foreseeable future. While that will dampen
demand for residential construction in the $160
near-term, a lack of inventory and pent up Mar. 2023:
$ Billions, Seasonally Adjusted Annualized Rate

demand should keep residential construction $140 $113.7B

activity above pre-pandemic levels for some
$120
time. In the short-term, the segment will be
defined by elevated multi-family construction $100
and subdued single-family activity.
$80
2
Oil and Gas-Related Construction $60
Construction spending in the power category,
$40
which encompasses oil, gas, and electric,
remains well below the all-time low established $20
in November 2019. After declining 23.3%
from the end of 2019 to September 2022, $0
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however, it has since rebounded over the

past six months. Since reaching that cyclical
low, power-related construction spending Source: U.S. Census Bureau; Note: Seasonally Adjusted

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 Exhibit 5. Construction Employment Growth, 20 Largest U.S. Metropolitan Areas, February 2020 v. April 2023
Rank MSA % Change Rank MSA % Change
1 Phoenix-Mesa-Scottsdale, AZ 15.1% 11 Baltimore-Columbia-Towson, MD* 4.5%
Philadelphia-Camden-Wilmington,
2 Tampa-St. Petersburg-Clearwater, FL 11.6% 12 4.3%
PA-NJ-DE-MD*
Washington-Arlington-Alexandria,
3 Detroit-Warren-Dearborn, MI* 8.4% 13 1.4%
DC-VA-MD-WV*
4 Atlanta-Sandy Springs-Roswell, GA 7.6% 14 Riverside-San Bernardino-Ontario, CA 1.4%
5 Dallas-Fort Worth-Arlington, TX* 7.6% 15 Minneapolis-St. Paul-Bloomington, MN-WI* 0.0%
6 Boston-Cambridge-Nashua, MA-NH* 7.4% 16 New York-Newark-Jersey City, NY-NJ-PA* -0.8%
7 St. Louis, MO-IL* 7.0% 17 Miami-Fort Lauderdale-West Palm Beach, FL -2.5%
8 San Diego-Carlsbad, CA 5.2% 18 Los Angeles-Long Beach-Anaheim, CA -4.2%
9 Seattle-Tacoma-Bellevue, WA 5.2% 19 San Francisco-Oakland-Hayward, CA -4.8%
10 Chicago-Naperville-Elgin, IL-IN-WI 4.6% 20 Houston-The Woodlands-Sugar Land, TX -5.4%
Source: U.S. Bureau of Labor Statistics * Construction, Mining, and Logging are included in one industry

Construction Employment
& Labor Supply
Despite economic headwinds, contractors
continue to add jobs at a healthy pace. The
industry added 15,000 net new jobs in April,
according to the Bureau of Labor Statistics,
and employment is up by 205,000 jobs over
the past year. That equates to a 2.7% annual
increase in employment, slightly faster than
the economywide pace of hiring.
Hiring would be faster if not for ongoing worker
shortages. The construction unemployment
rate fell to 4.1% in April. That’s the lowest rate
ever observed in the month of April (because
this data series isn’t seasonally adjusted, it’s
best to compare on a year-over-year basis)
and lower than at any point from the start of
the data series in 2000 to the end of 2018.
As a result of labor scarcity, construction
wages are rising at a significantly faster pace
than economywide wages. In April 2023,
average hourly earnings for construction
workers were up 5.4%, well above the 4.4%
increase observed for all workers. This
dynamic should remain in place at least in
the near-term as demand for labor remains
elevated. According to Associated Builders
and Contractors Construction Confidence
Index, a majority of contractors intend to
increase their staffing levels over the next
six months while fewer than 10% intend to
decrease them.
Regionally, large urban areas in the Midwest
continue to add jobs at a rapid pace as
manufacturing-related construction activity
and relatively less labor-constrained markets
lead to faster hiring. Parts of the country
associated with population decline, like
New York and San Francisco, continue to
be associated with sluggish construction
employment growth.
The Ugly
Credit Conditions
The Federal Reserve decided to raise interest
rates by another 25 basis points on May
3rd, bringing the target range of the federal
funds rate to 5-5.25%, the highest level since
2007. The Federal Reserve began tightening
monetary policy back in March 2022 in an
effort to suppress excess inflation, and they
have now raised rates by at least 25 basis
point at each of their past ten meetings.
Rate hikes are supposed to reduce inflation
by making borrowing more expensive,
thereby reducing aggregate demand. This
obviously has significant implications for
construction activity, the vast majority of
which is financed. Higher borrowing costs
discourage developers due to the increased
cost of construction and investors due to
the increased risks associated with higher
interest rates.
Credit conditions, already affected by higher
interest rates, have now been exacerbated
by the failure of two banks in early March
and another in late April. The banking crisis
appears to be contained, at least for now,
but the result has been a banking sector
significantly less willing to extend loans. As
one business leader explained in Beige Book,
a resource published by the Federal Reserve,
“some banks had stopped lending for new
commercial construction projects and/or had
tightened underwriting standards.”
Conventional wisdom says it takes 12 to 18
months for the economy to feel the effects
of higher interest rates, and it’s now been
14 months since the first increase. Certain
construction markets, like single-family
housing, have already buckled. While
contractors participating on private and
public megaprojects are positioned to remain
busy during the months ahead, those not in
a position to participate on those types of
projects may experience declining backlog
for much of the next two years.

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 First Quarter 2023 Performance Values % Change from
Gross Domestic Product (% Growth, SAAR) 2023Q1 (1)
2022Q4 2022Q3
Overall Real GDP 2.9% 3.2% -0.6% NA NA
Nonresidential Fixed Investment in Structures 0.4% -3.6% -12.7% NA NA
Construction Spending, SA ($Millions) Mar-23 Feb-23 Mar-22 Feb-23 Mar-22
Total Construction $1,834,692 $1,829,580 $1,768,168 0.3% 3.8%
Residential $837,547 $838,897 $929,023 -0.2% -9.8%
Nonresidential $997,145 $990,683 $839,145 0.7% 18.8%
Conservation and development $22,370 $22,281 $16,203 0.4% 38.1%
Public safety $97,242 $97,166 $84,343 0.1% 15.3%
Sewage and waste disposal $125,407 $126,411 $104,265 -0.8% 20.3%
Lodging $56,592 $56,606 $51,026 0.0% 10.9%
Communication $108,244 $107,357 $97,783 0.8% 10.7%
Office $2,947 $3,072 $2,879 -4.1% 2.4%
Transportation $11,393 $11,765 $10,973 -3.2% 3.8%
Highway and street $29,258 $29,206 $25,993 0.2% 12.6%
Educational $61,287 $62,181 $54,515 -1.4% 12.4%
Power $24,822 $24,993 $23,633 -0.7% 5.0%
Water supply $113,655 $114,074 $116,976 -0.4% -2.8%
Health care $122,548 $122,658 $100,971 -0.1% 21.4%
Manufacturing $37,621 $37,298 $29,915 0.9% 25.8%
Commercial $24,628 $24,226 $19,502 1.7% 26.3%
Amusement and recreation $11,715 $10,435 $9,346 12.3% 25.3%
Religious $147,416 $140,955 $90,823 4.6% 62.3%
Employment, SA Apr-23 Mar-23 Apr-22 Mar-23 Apr-22
All Industries 155,673 155,420 151,424 0.2% 2.8%
Construction 7,903 7,888 7,692 0.2% 2.7%
Residential building 930 932 914 -0.2% 1.8%
Nonresidential building 856 858 826 -0.2% 3.7%
Heavy and civil engineering construction 1,094 1,102 1,066 -0.7% 2.6%
Residential specialty trade contractors 2,332 2,316 2,286 0.7% 2.0%
Nonresidential specialty trade contractors 2,690 2,679 2,601 0.4% 3.4%
Producer Price Index, NSA (2) Mar-23 Feb-23 Mar-22 Feb-23 Mar-22
Finished Goods (SA) 143.0 144.5 140.1 -1.0% 2.1%
Inputs to Construction Industries 319.2 318.5 322.2 0.2% -0.9%
General Contractors (New Nonresidential Building Const.) 158.4 158.2 136.7 0.2% 15.9%
New Nonresidential Building Construction (U.S.) 163.3 162.9 139.4 0.2% 17.1%
Northeast 168.2 167.0 144.1 0.7% 16.7%
South 161.4 161.2 136.7 0.1% 18.1%
Midwest 155.4 155.1 134.7 0.2% 15.4%
West 169.0 168.8 144.0 0.1% 17.4%
Source: U.S. Bureau of Economic Analysis; U.S. Census Bureau; U.S. Bureau of Labor Statistics.
Notes: 1. Advance (1st) Estimate. 2. The Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their
output. The prices included in the PPI are from the first commercial transaction for many products and some services. All figures are indexed from a base year, that base year being
different for each individual index.
3. SA: Seasonally Adjusted. NSA: Not Seasonally Adjusted. SAAR: Seasonally Adjusted Annual Rate

4
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 Construction Services
Marcum llp is a premier provider of full service accounting, tax and consulting services to the construction industry. Our clients range from small
contractors to billion dollar international construction organizations. Our client base gives us the breadth and depth of construction experience to
effectively and efficiently develop the strategies needed to meet your requirements.

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Auditing Services Services Services Services

Audits, reviews & Tax deferral maximization Surety credit & bank Accounting and
compilations of financial through contract element financing assistance administration
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companies Long-term construction Business acquisition bank accounts
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Internal audits Alternative minimum Forensic accounting to accounts
Pension & benefit plan review tax planning Fraud investigations Reviewing proof of claims
& audits (ERISA) Look-back planning Litigation support/expert and determining correct
Financial forecasts & compliance testimony payments
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Internal controls review Federal, state & local Strategic planning & profit payment required
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Financial analysis of principal Monitoring project progress/ Administration of trust/
Claims evaluation/ cost estimates escrow accounts
administration Litigation support/principal Cash flow analysis
Indemnity investigations/ tax issues Underwriting support
sources of recovery

Joseph Natarelli Anirban Basu

Joseph Natarelli is national leader of Marcum’s
Construction Industry Group and office managing
partner in New Haven. For more than a decade, he
has served as a technical reviewer for the AICPA’s
Audit Risk Alert for Construction Contractors and the
AICPA Accounting Guide – Construction Contractors.
Joe has also chaired the annual AICPA National
Construction Industry Conference.
Anirban Basu is Marcum’s chief construction economist. He is
also a member of the Firm’s National Construction Practice, as
well as chairman & CEO of Sage Policy Group, Inc., an economic
and policy consulting firm in Baltimore, Maryland. Anirban leads
Marcum’s research and analysis of the economic health of the
commercial construction industry in America. Additionally, he
writes the quarterly Marcum Commercial Construction Index and
annual Marcum JOLT Survey analysis and is a keynote presenter
at the Firm’s construction industry summits.

National Construction Industry Services Leaders

JOSEPH NATARELLI FLORIDA: NEW ENGLAND:
National Construction Industry Group Leader MICHAEL BALTER ROBERT MERCADO
joseph.natarelli@marcumllp.com michael.balter@marcumllp.com robert.mercado@marcumllp.com
203.781.9710 954.320.8040 203.781.9730
CALIFORNIA: MIDWEST: NEW YORK:
WARREN HENNAGIN ROGER GINGERICH IRA KANTOR
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949.236.5620 440.459.5725 631.414.4726
FLORIDA: NASHVILLE: NEW YORK:
ASHLIE FORUM BILL CLARK, JR. PAUL DITREDICI
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954.320.8084 615.245.4040 631.414.4310
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