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March 3-7, 2026

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2023 Construction Economic Forecast



Shot of a group of builders assessing progress at a construction site

Despite a lot of talk about recession word in the media, economists for Associated Builders & Contractors (ABC), Associated General Contractors (AGC), and Dodge Data and Analytics think the US economy will narrowly avoid recession in 2023 – generally considered to be when the gross domestic product (GDP), employment, and investment all fall simultaneously.

“There will be some sectors that will feel recessionary and some that don’t,” says Dodge Chief Economist Richard Branch. This mixed economic outlook for 2023 is likely to reward contractors who are able to pivot to sectors experiencing growth.

In a recent podcast, AGC Economist Ken Simonson points to continued job growth, government spending, and declining inflation as positive signs we won’t be facing a recession.

As of November, contractor confidence remains surprisingly upbeat according to ABC’s Construction Confidence Index. “Six in 10 contractors intend to increase their staffing levels over the next six months, while just more than one in 10 expect to shed workers,” says Zack Fritz, Economist for ABC. “About half of contractors expect their sales to increase compared to about two in 10 who expect their sales to decrease.”

The down markets

Residential construction

Rising interest rates put the brakes on what was a robust housing market in early 2022. “Residential construction is facing a severe challenge,” said Simonson. “We have seen a decline in housing starts, building permits, and home sales.”

Dodge’s Branch expects the single-family home market to bottom in late Q1 or Q2 of 2023.  “Residential typically leads the construction sector into decline,” he says.

Office construction

Office construction is expected to decline in 2023 due to the negative impacts of remote work. ABC’s Fritz believes that office-related construction spending (up just .9%) likely understates the sector’s weakness. “First, construction spending data aren’t adjusted for inflation, and construction input costs are up 40% since February 2020,” he says. “Second, the office category of construction spending includes data centers, a segment that has fared well in the past few years.”

Warehouse construction

Earlier this year Amazon announced it was halting or delaying the construction of warehouse facilities as it sought to adjust to reduced demand. “They account for 16% of the market,” says Branch. As a result, Dodge reports that this segment (previously one of the strongest segments of commercial construction) is now overbuilt and poised to decline beginning in 2023.

Retail construction

Demand for brick-and-mortar retail continues to be impacted by growth in online shopping. “Retail is way below where it was three years ago,” says Simonson.

Manufacturing construction

According to Fritz, supply chain dysfunction and extraordinarily elevated shipping costs incentivized producers to restore manufacturing capacity, and producers continue to announce new domestic investments in capacity. For instance, on Dec. 6, 2022, the Taiwan Semiconductor Manufacturing Company announced they would build a second semiconductor manufacturing plant in Arizona. “As a result, manufacturing-related construction spending is up nearly 44% from the start of the pandemic,” says Fritz.

Legislation such as the CHIPS act and the Inflation Act of 2022 also incentivized manufacturing construction. Yet, after the massive run-up in 2022, the Dodge forecast calls for a steep decline in 2023. Despite the decline, the segment will account for $52.1 billion in construction spending for manufacturing – well above historic levels.

The up markets

Public works construction

According to Dodge, public works construction will increase by 18% in 2023 to $225 billion. The Infrastructure Investment and Jobs Act (IIJA), signed into law at the end of 2021, provided $1.2 trillion to invest in the nation’s roads, bridges, transit systems, airports, waterways, drinking water and wastewater systems, as well as energy infrastructure.

“We have not seen this kind of investment in infrastructure since WWII,” says Branch.

According to the Dodge forecast, the conversion of power and utilities to renewable sources will spur 8% growth in this sector in 2023.

“Worldwide we are seeing efforts to restructure the existing fossil fuel market with an emphasis on alternative and renewable energy,” adds AGC’s Simonson.

Data Center Construction

Data centers, a component of the office construction market in the Dodge forecast, will continue to be a bright spot in 2023, thanks to increased demand from online shopping and employees working from home.

Potential headwinds

Supply chain issues for construction equipment

A recent survey conducted by the Association of Equipment Manufacturers among construction and agricultural equipment found 98% of respondents were still experiencing supply chain issues, with 58% experiencing worsening supply chain conditions. Workforce shortages and access to components were the key issues. Respondents who manufacture construction equipment reported an average of 44% of the optimal inventory of semiconductors and chips is available.

High borrowing costs could cancel projects/reduce buying power

Branch views high-interest rates and rising materials prices as key headwinds, particularly in multifamily, office, retail, and hotel construction. “With rising costs, projects may not make economic sense,” he says. While high costs aren’t likely to shut down large infrastructure projects, they could mean initial proposals may need to be scaled back. According to data from the Bureau of Labor Statistics, construction firms had to contend with a nearly 60% increase in diesel fuel, a 26% increase in architectural coatings such as paint, and a 19.8% increase in asphalt paving mixtures and blocks from November 2021 to November 2022. In recent months prices have begun to fall for some commodities such as steel, copper, lumber, and gasoline.

Labor shortages will continue

ABC, AGC, and Dodge economists all believe the construction industry will continue to be challenged to attract workers. “Demographic factors will continue to inhibit workforce development, and the historically low levels of immigration over the past two years will also limit worker availability,” says Fritz. “These issues will be especially acute in certain skilled trades, which have aging workforces and higher barriers to entry.”

According to Simonson, contractors can expect the labor situation to continue far longer than materials costs or supply issues.

Location matters

The economic outlook varies by region. “Folks in California have a negative outlook, says Branch. “People are leaving that state.” “Folks in Texas are very positive. That part of the country is outperforming other regions.”

Fritz sees a similar trend. “The South and parts of the West will continue to see greater investment than the Northeast and parts of the Midwest, and that has a lot to do with population dynamics,” he says. “As more people flock to warmer states with friendlier tax environments, construction spending will follow suit.”

While recession remains a possibility, Branch says that even if a recession does occur, he expects it to be mild, especially when compared with the Great Recession of 2007-2009.

“There are still lots of opportunities to grow and be profitable.”

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