Wells Fargo Index Shows Muted Optimism for Construction in 2023

There is cautious optimism in the construction industry given the strong backlog of jobs and orders, and despite a shortage of skilled labor and increased labor costs, according to the Wells Fargo Construction Index for 2023, based on input from industry executives.

Industry sentiment has declined amid economic and supply chain concerns, according to the report, including within distributors and contractors, and across both the residential and non-residential sectors.

“There is a sharp increase in anticipated decline in residential construction in particular for the year ahead,” Wells Fargo said. “Those who predict residential construction activity will decrease are more likely to indicate that interest rates are their top cost concern, with inflation impacting the cost of materials and overall profitability as well as delaying projects due to borrowing costs.”

However, there is plenty of work to be done, buoyed by infrastructure spending, and anticipated supply chain stability.

More than half believe the industry will expand in two years, and among those who believe construction activity will remain the same, most believe it will increase in 2024 or beyond, according to the report.

Derailing some hopes is the ability to hire skilled employees, said four out of five in the executive survey.

Companies said their best hope to overcome that challenge is through wage increases and training.

The next biggest industry threat is inflation. Over half of the contractors also list it as one of their top two cost concerns for their business in 2023.

James Heron, national sales manager for the Wells Fargo Equipment Finance Construction Group, said in prepared remarks that despite a number of market variables, “the level of optimism reflected in the 2023 forecast survey confirms industry leaders maintain a deep-seated belief in economic recovery.”