Headwinds remain from a shaky 2022 economy, but there is cause for hope in the construction market.

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By Ben Johnston, Contributing Writer Design & Construction The construction sector navigated a choppy and challenging 2022 by being nimble, creative, and disciplined.

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This spending drove demand for everything from housing to cars to vacation rentals, but as interest rates rose steadily throughout the year, demand began to subside and prices for many items in short supply came down.

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Rising interest rates will weigh heavily on the construction market in 2023 and will create challenging conditions for new construction broadly.

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Fortunately, inflation is expected to be lower in 2023 than it was in 2022, and the actions of the Federal Reserve are expected to reduce inflation further as the year progresses, limiting further demand destruction and inflationary trends.

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The construction sector will also struggle to obtain the capital required to fund daily operations.

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Banks are now facing increasing delinquency rates, higher borrowing costs, and deposit outflows.

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Other economic factors impacting the construction sector: Inflation: Economic discussions in 2022 were dominated by the surge in inflation and the Federal Reserve's quest to bring it under control.

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Unemployment has remained low and job vacancies high throughout the Fed's tightening cycle, despite efforts to reduce demand.

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As a result, wage inflation remains high, and we expect the Federal Reserve to continue raising rates in 2023 until wage growth and job vacancies are brought in line with historical levels.

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Economic discussions in 2022 were dominated by the surge in inflation and the Federal Reserve's quest to bring it under control.

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Russia's invasion of Ukraine disrupted oil and grain markets causing spikes in energy and food prices, but the market has largely compensated for these disruptions, and normalization of supply chains that we experience in 2022 is expected to continue into 2023.

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Continued cost reduction for U.S. manufacturers is critical as a strong dollar has hurt the competitiveness of U.S. manufacturing on the global stage and is slowing the overall repatriation trend.

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The political environment: With Republicans taking control of the House and Democrats holding the Senate and the White House, major economic legislation appears unlikely in 2023.

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