Our Q2 2024 Market Conditions report summarizes current market conditions, industry trends, and mitigation strategies to make more informed business decisions in the quickly changing construction landscape.

Growth in the U.S. economy has dropped to its weakest rate since 2022— according to the Commerce Department’s Gross Domestic Product (GDP), reported by quarter. High interest rates designed to curb inflation just haven’t had the impact as intended. So, what is the Fed doing about it?

Though inflation, as the Fed publishes, has been sloping downward steadily, the focus is now on avoiding a recession. As the GDP scales back and inflation remains high, stability in the market is still yet to be seen.

The fact of the matter is that prices are still high for consumers across the board. In certain sectors and pockets, prices have dropped, but in the building industry the likelihood of seeing pre-pandemic pricing is a long-shot. It would take an extreme turn of the economic tide to see building costs decrease, and that would have a dramatic impact to the industry. We should be looking for stability and regularity as an ideal, hoping to avoid the peaks and valleys. However, no one anticipates a recession.

Historically, according to experts that study the effects of the economy on Presidential elections in the U.S., it is much more difficult to predict who will win the election in 2024 than in the past. Several articles refer to an “Age of Polarization” in the U.S., where people are so focused on party-line voting as the primary driver of a vote that the economy, and other issues, are just not as much of a determining factor.

It’s interesting to follow political science professors debate on this topic. Will the economy matter in this election? Generally, the people that research this topic agree that the economy will always be a factor.

History shows that in the four-year Presidential cycle, year four typically experiences a modest pull-back in the markets during the second half of that year. But history would also indicate that, while policies can dramatically affect the economy and our wallets, it is difficult to establish a consensus on whether the key to economic growth lies with voting Republican, Democrat, or Independent. Presidents do not control the economy; there are too many other factors at play to over-simplify it in that way.

Our Federal Government is designed to have checks and balances, and while you might expect that a “sweep” of Democratic or Republican control over the White House and Congress would have the most dramatic impact on the market, the data would indicate that’s not entirely true.

U.S. Bank looked into this topic and developed an overview. The data is pretty clear: a house divided just might be the most economically positive situation for us to look forward to. Food for thought...

Source: U.S. Bank Asset Management Group, November 2023

In March, the Federal Trade Commission said that the three largest food retailers—Kroger, Walmart and Amazon—“accelerated and distorted the negative effects associated with supply chain disruption.” Grocery prices have jumped by 25% in four years, and while retailers have contended that the higher prices merely reflect their greater costs, the FTC found data to the contrary.¹

They are not alone. Hershey’s has been raising prices steadily over the last several quarters. They identified cocoa prices as the reason for those increases, caused by heavy rains in West Africa. And while it is true that cocoa hit an all-time high last month and costs 1.5 times what it did a year ago, Hershey’s profits outpaced their cost increases dramatically, to a reported $1.9 billion in net income in 2023, up 62% from 2019.²

But more recently, as Hershey’s has continued to raise prices, sales have started to drop, causing Hershey’s to start to dip into their profits in 2024 to offset some of these increases.³ The Washington Post reported, “In January, markups by the wholesalers and retailers that handle most consumer goods shrank for the fourth consecutive month—the first time that has happened in the 13 years that the government has tracked such figures.”⁴

These shifts in spending suggest that price increases, at least for certain products, are not being accepted and that the Fed’s interest rate hikes during the past two years are cooling inflation. We’re seeing this in the inflation figures over the last several months, as the rates continue to drop nearer to pre-pandemic levels.

But this may not last. Housing prices are down a bit,⁵ but Goldman Sachs is predicting a rebound in 2024 due to the anticipated Fed interest rate cuts,⁶ even as long-term interest rates ticked up slightly in early April to their highest levels since November 2023.⁷

The unemployment rate remains low—below 4%⁸—which continues to apply pressure to labor costs. And while the architectural billings decreased again in February, it was the smallest decrease since July 2023. In fact, design contracts are increasing,⁹ suggesting that additional work is coming.

The big news of the first quarter of 2024 was the Francis Scott Key Bridge collapse on March 26. This collapse, like the bridge in Philly that collapsed last year and the boat that got stuck in the Suez Canal, illustrates the fragility and importance of resiliency in our logistics network. This resiliency remains important even as COVID impacts to supply chain have subsided.

According to CNN, Baltimore is the ninth biggest U.S. port for international cargo, and “is also the leading U.S. port for farming and construction machinery, as well as imports of sugar and gypsum, and the second in the country for exporting coal.”¹⁰

Sean McNally, VP of Public Affairs and Press Secretary for the American Trucking Associations, said, “nearly 4,900 trucks travel the bridge daily, with $28 billion in goods crossing every year.” He continued, “trucks moving hazardous materials will now be subject to roughly 30 miles of detours around the City of Baltimore because they are prohibited from using the city’s tunnels. This will add significant cost in time, fuel, and delays for trucks traveling through the region, on top of the disruption that a closure of the Port of Baltimore will inflict on our economy.”¹¹

We anticipate that the Port of Baltimore will be open at capacity within weeks as the debris is being removed, but the hazardous cargo will require rerouting until the bridge is rebuilt. In the meantime, expect high prices and delays for cargo that has been redirected to reach the port.

FleetOwner, an online resource for vehicle professionals, recently identified the six biggest vulnerabilities in our trucking industry as:¹²

We anticipate we will continue to see supply chain issues, although not to the extent which we experienced during the pandemic. Larry Culp, Chairman and CEO of GE Aerospace, said, “I think we’re making progress, but we just can’t make enough progress.” When speaking of timing, Culp said, “I think we’ve easily got a couple of years that I think we’ll be talking about this.”³¹

Some feel consumer behavior and the supply chain have changed post-pandemic, putting focus on a new approach. Roger Mayerson, Senior Vice President at AI supply chain planning software company Logility, said a shift in buying behavior, new channels of distribution and changes in online shopping preferences make the old forecasting model obsolete. Brands are finding that the sales data from 2020 to 2022 is producing low-quality forecasts and they need to find a better way to build their demand plans.³²

So, supply chain professionals are adapting and applying strategies, tactics, and technologies that will boost productivity, and reduce costs over the long term.

Here are five key trends, according to SupplyChainBrains, that will shape the logistics and supply chain landscape in 2024, and how we apply those approaches in DPR:³³

While the easing of supply chain issues is positive, DPR has been actively working to control our destiny and prepare for the future in managing our supply chain. We aim to ensure a reliable supply chain that keeps our projects on track, hitting critical milestones, and minimizing the effect of outside events.

Photos: Bill Michie, Aaron Yang, and Danny Sandler.