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By Ethan Duran

The Daily Reporter

The construction economy next year will be marked with lingering inflation linked with strong demand and growth, according to Associated Builders and Contractors top economist Anirban Basu.

Looking ahead to 2023, supply will struggle to keep up with demand as the economy remains unbalanced by international conflict and coronavirus-related problems, so-called 鈥減urveyor of doom and gloom,鈥� Basu said during a Construction Executive webinar on Wednesday. He also forecasted higher-than-average economy-wide inflation and interest rate increases next year.

The economist blamed market wage pressures for broadening inflation and the Federal Reserve for enforcing low interest rates from 2020-21 to a costly effect. Inflation was up 7.1 percent year over year in the latest Consumer Price Index.

鈥淭he worst of inflation is behind us, but it will be problematic for years to come,鈥� Basu said. 鈥淚t started in 2021 due to supply chain issues.鈥�

Russia鈥檚 invasion of Ukraine drove up energy prices and China鈥檚 COVID-19-related quarantines impacted prices of construction materials. Global inflation was higher than 2021鈥檚 forecasts: The World Economic Outlook in October 2022 was nearly 4 percent 鈥� higher than previous predictions.

The U.S. economy was 鈥渙verheated鈥� because of economic growth and high inflation, Basu said. Gross domestic product was up 2.9 percent in the third quarter and the economy has good momentum going into 2023 but not enough people were able to do the work, he added. In the latest U.S. labor force participation rate data, only 62.1 percent of able bodies were working.

鈥淭his is one of the things I didn鈥檛 guess,鈥� the economist said. 鈥淚 thought people wanted to pay bills amid high food and gas prices. Airfare prices are up now.鈥�

Basu pointed to the lack of affordable day care facilities as a possible culprit and said if families were unable to find remote work, they would stay out of the job market altogether.

The Bureau of Labor Statistics found construction added up to 126,000 jobs over two years, which Basu said was 鈥渁lmost nothing.鈥� Responding to a webinar poll, 56 percent of nearly 600 attendees said their leading challenge was finding skilled workers.

Numerous baby boomers hitting their 70s left the industry without many young people to replace them, Basu said. A slowdown of legal immigration and ongoing undocumented entries into the U.S. have created聽a pair of problems, he added.

Homebuilding stumbled under high mortgage rates, which were at 6.33 percent for 30 years and 5.67 percent for 15 years, data from Freddie Mac showed. Building permits for single-family homes were close to levels last seen in 2007 along with fewer home sales, U.S. Census Bureau data showed.

鈥淗ome sellers kept prices high as the economy changed and buyers want to buy low,鈥� Basu said. 鈥淓ventually they will have to take their prices down or take homes off the market.鈥�

While lodging construction was down in the last round of census bureau data, public construction was up thanks to federal grants for infrastructure for the next five years, Basu said. Nonresidential contractors found more demand for manufacturing projects, spurred by government incentives like the CHIPS and Science Act.

There would be a catch to the incentive as plants were slated for only cities like Phoenix, Columbus, Ohio, and Syracuse, N.Y., Basu said. However, it was a sign of production coming back to American shores, he added.

Americans will probably feel the bite of interest rate hikes in the future, Basu said. Research showed the economy doesn鈥檛 feel interest rates going up for 8-12 months, he added. The Federal Reserve moved the rate up 0.5 percent on Wednesday, the sixth time it raised rates in 2022.