Our monthly construction industry trends report combines the latest industry data with internal survey results from National Business Capital’s award-winning team. We have accumulated extensive experience in the construction industry since 2007 and we are pleased to share these findings and expand upon them through our unique expertise.
Our goal is to provide business leaders and decision-makers with the necessary information and data to make informed decisions in their business activities.
The Fed will cut the prime rate by 50 basis points
Data provided by JPMorgan Chase
September 2024 – On September 19, the Federal Reserve lowered the prime interest rate by 50 basis points from 8.5% to 8%. The move signals progress in their fight against runway inflation that has plagued the economy in the wake of the pandemic and that the economy is ready to rebound.
The rate cut also marks the end of a three-year tightening cycle in which the prime rate reached its highest point since 2001. Industry restrictions are also greater.
Access to low-cost capital could spur construction activity across the country. By obtaining working capital, equipment loans, and more, construction companies can purchase necessary materials, hire professional workers, and operate at their best with new equipment and tools. We believe this could significantly increase construction revenue over the next 2-5 years.
Considering a lack of funding is holding back the construction industry, the Fed’s decision is good news for society. When construction companies are able to tap capital beyond cash flow, they can bid bigger on projects, capture more real jobs through infrastructure investments, and streamline daily operations to complete projects quickly and profitably.
However, it is debatable whether this is putting the cart before the horse. Many economists use construction activity as a lagging indicator of the health of the economy, so it’s worth noting that a rate cut on its own won’t immediately spur construction activity. Instead, it will restore market confidence, thereby making construction projects more attractive and feasible to business decision-makers, thereby increasing demand for construction projects.
Rate cuts x residential construction
Another aspect of a rate cut that construction companies should consider is how it affects the housing market. Since the Fed cut interest rates less than a month ago, we can only make predictions based on historical data.
Source: Census.gov
September 2024 – The latest available data (August 2024) shows a downward trend in permits and starts, while the opposite is true for completions. Given the uncertainty in the market heading into the election season, permitting and construction starts are likely to lag as policymakers wait for a more certain climate.
Going forward, however, rate cuts may trigger changes in housing market activity. As mortgage rates fall, homeowners may consider selling to take advantage of the inflated housing market. As supply increases, we believe this will break the logjam that has hampered property market activity.
Experienced homebuyers and first-time homebuyers alike will take advantage of the new inventory and soon begin investing in their equity through renovations. As this trend develops, demand for renovation projects will increase significantly, although performance will depend on material prices.
Lumbar Spine Cost (2020-2024)
*Years are calculated in USD/1,000 board feet
Source: TradingEconomics.com
Lumbar lumber, one of the key materials for many construction industries, has seen significant fluctuations over the past five years, especially between 2020 and 2022, when prices increased significantly.
Since then, we have seen some softening in prices. However, recently we have seen a 21.1% increase in lumbar spine costs.
Lumbar Spine Cost (October 2023 – October 2024)
*Years are calculated in USD/1,000 board feet
Source: TradingEconomics.com
The chart above shows lumbar spine costs over the past 12 months. After falling mid-year, prices are rising again after bottoming out around August.
Construction companies must stay informed about material prices to be able to accurately estimate job costs and protect their revenue. Scheduling projects around lower material prices may increase revenue. If costs are high, construction companies can also finance the purchase of these materials to maintain positive cash flow, especially now that the Federal Reserve has begun lowering interest rates.
National Business Capital Building Review (September 2024)
Each month we provide a unique perspective on the short to medium term outlook for the construction industry. Our insights come from a combination of existing industry statistics, internal data and the overall sentiment of the construction clients we work with on a daily basis.
- The amount of construction funds increased by 23.75% – Construction companies received 23.75% more funding this month compared to August. Approval rates are higher and businesses feel more confident moving forward when it comes to financing. As mentioned in our previous reports, continued growth in funding is great news for the community.
- Construction companies confident of their plans – This month, we noticed a significant increase in construction companies planning to expand. While we have seen some companies choose to wait for their chance in the past, and some are even now waiting for election results, policymakers are starting to move forward with more confidence.
- Mix of industry business activities – Construction companies in the Northeast have begun slowing operations to prepare for winter, while companies in southern states are preparing for increased workloads.