The second half of 2022 has proven to be a unique moment for the national economy. Various indicators are all forecasting different things. Because of this, a credible case can be made to support wildly different claims about the economy.

Experts can credibly say that the economy is both booming and in a recession, and this is giving regulators headaches. There are, however, a few things that we can say for certain: one is that the Federal Reserve will continue to raise interest rates until there is clear proof that inflation is receding. This will make it harder to finance new projects, which should in turn cause fewer projects to enter the pipeline. We are closely watching each new bit of data for signs that the picture is becoming clearer.

Total nominal construction spending continues to be propped up by rising costs and prices. Nominal US construction spending declined in August, as the single-family segment continued to cool. The construction industry is strongly tied to economic growth, to the point that some economists use the number of cranes visible in skylines across the country to forecast economic performance. By this measure, the economy is growing faster than ever. We would like to continue to sound a note of caution for those in the industry, as we have seen markets change almost daily since 2020 and expect this to continue. Fortunately, most of us have adapted to this situation, and contractors are less likely to be caught off-guard by sudden changes in the market.

Inflation has exceeded expectations both in terms of scale and steadfastness. Regulators have responded by raising interest rates to bring it under control. However, this impact has been much slower than initially anticipated. Notably, it has not tempered hot construction markets like Miami, New York, and Boston, which have continued to hold steady with very high construction prices. This has in turn raised alarm bells: the Fed will need to take more and more dramatic steps to rein in markets, and this increases the risk of an overcorrection plunging the market into recession. As work has continued to grow and contractors have filled their backlogs, they are no longer absorbing the inflationary pressures as was seen in downtimes like during the pandemic. We believe that inflation will at least flatten or hold steady until commodities come back down and/or contractors feel the need to absorb costs to lock in future work – i.e., start to worry the market will contract.

A recession has no formal definition. The conventional definition of two consecutive quarters of negative GDP growth is not accepted among economists as it relies on too few datapoints. It is instead decided by the National Bureau of Economic Research, which uses various data points to determine when a recession starts and stops. This would normally be a straightforward process, but because different indicators are pointing to different things, regulators are watching closely for each new data point before making the call. Here at Cumming, we forecast that productivity and payroll growth will slow, causing only modest GDP growth by the end of the year. After that, however, we cannot say anything for certain.


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