The construction industry is one of the U.S. economy’s largest sectors. It employs roughly seven million workers and is responsible for more than $1.8 trillion in spending each year. As 2023 approaches, many construction industry professionals will be wondering what challenges and issues they will be facing over the coming year.
Construction Industry Results and Outlook for 2023
According to Research and Markets, the construction industry has made a significant recovery from the slowdown in the wake of the COVID-19 pandemic. The economic slowdown in 2020 technically qualifies as a recession, but it was a short one.
The U.S. construction industry contracted 1% in real terms in 2021 compared to the prior year, and gross output was down 4.5% year over year in Q4 2021. The industry is expected to expand by about 9% in 2022 and another 6% in 2023, according to projections from the American Institute of Architects. However, that doesn’t mean the industry won’t still face challenges in the coming year.
8 Challenges Facing the Construction Industry in 2023
1. Labor Shortages
The construction industry lost over a million jobs in 2020 due to the COVID-19 pandemic. Many workers were laid off, found work in other industries, or chose to retire early. As the economy has slowly recovered, some of those workers have decided not to return to this sector.
Unfortunately, the construction industry isn’t attracting enough skilled labor to satisfy growing demand.
The current shortage of nearly half a million construction industry workers is expected to expand over the next several years. While the industry is adding some workers, it has only recovered about 67% of the jobs lost in the first several months of the pandemic.
Construction businesses will continue to struggle with labor shortages in the coming years. One of the ways to address this issue is to make the work more attractive by focusing on things like competitive wages, job training, and technology adoption.
2. Supply Chain Issues
The global supply chain isn’t as resilient as many believed prior to the pandemic. While we aren’t seeing the volatility we experienced in 2020 and 2021, the construction industry supply chain hasn’t regained the stability necessary to make informed business decisions.
Construction materials were historically purchased when needed but now must be acquired in bulk to assure availability. Stockpiling supplies increases costs due to storage and places further strain on the supply chain. Some experts predict supply chain issues will begin to ease in 2023, but the future remains unknown.
3. Rising Inflation
Inflation rates over the past year have been the highest since the early 1980s. This is a tough situation for the construction industry because it means raw materials cost more than ever. At the same time, these economic conditions could push potential clients to sign new contracts now rather than wait for inflation to reach even higher levels.
4. Crime Risks
Vandalism, theft, and cybercrime will always be concerns in the construction industry. These issues will only be amplified in down economies because people become more desperate and resourceful.
Addressing crime risks requires investments in security and surveillance equipment. In addition to protecting your physical assets, you’ll also want to ensure your financial assets have the proper safeguards in place.
5. Technology Adoption
The construction sector as a whole has been slow to adopt new technologies. Despite acknowledging the benefits technology can provide to businesses and the industry, business owners continue to underinvest in these areas.
Mobile devices, software applications, and telematics have all been used in the construction industry for several years. Emerging technologies like 3D printing, drones, robots, AR and VR, autonomous vehicles, wearables, and the Internet of Things (IoT) all have tremendous potential to revolutionize efficiency and quality in construction. Businesses that are early adopters will find they also have a competitive edge.
6. Safety Concerns
When you have people working for you on a job site with potential hazards like heavy equipment, live electricity, and staggering heights, it involves some significant risks. The construction industry is consistently one of the most dangerous ones in terms of injuries and workplace fatalities.
Workplace accidents are tragedies for injured workers and their families, and they can also result in costly lawsuits and insurance premiums for employers. Construction companies can address some of these issues by putting strong workplace safety programs in place.
7. Cash Flow Troubles
Construction companies must have an adequate supply of free cash to pay for several things regularly. These include payments to vendors, subcontractors, employees, suppliers, and so on. However, money coming from clients only happens when certain milestones are achieved.
Cash flow management is a common issue with construction companies. In light of the other challenges listed, like rising inflation and supply chain issues, construction companies need to pay close attention to financial management in the coming year.
8. Weather Concerns
Weather is a serious concern for construction companies almost anywhere in the U.S. From hurricanes to tornadoes to early winter storms, nothing can delay or derail a project faster than unexpected bad weather.
In 2022, there were at least 14 named storms, including two major hurricanes, one of which made landfall in the U.S. as a Category 4 (Ian). In addition to these events, contractors need to consider things like major flooding and fires. All of these tragedies not only risk human life, but they also damage property, divert resources, and increase the cost of raw materials.
Contact New Lyfe for All Your Construction Accounting Needs
Construction companies will continue to face a variety of challenges in the coming year, but you can face any financial struggles head-on with the right strategy and partner in your corner. Outsourcing the financial side of your business is the best way to stay organized and remain focused on growth.
At New Lyfe Accounting (NLA), we offer customized financial services to clients in the construction industry. Our construction CFO services are the foundation of our services, giving clients a high-level strategic partnership that builds on strengths and supports growth.As supplementary services, we offer project accounting, bookkeeping, and construction software solutions. Contact us to learn more about how our services can help your construction business succeed in the coming year and beyond.