Our Q4 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.

As we head towards the end of 2024, the construction and real estate industries are feeling the effects of ongoing economic changes, bringing a mix of challenges and opportunities. We explore some of these dynamics as well as the trends our experts are seeing within the core markets section of our quarterly report.

Labor market impact

Changes in labor and immigration policies have the potential to affect the availability of skilled workers. In 2024, approximately 77% of contractors reported having increased difficulty filling craft positions as compared to 2023. This reflects ongoing labor shortages in the construction industry, highlighting challenges in attracting and retaining skilled workers. The trend underscores the need for investment in training and development to address workforce gaps, something to keep an eye on.

Overall economic climate

How the economy looks after the elections—like interest rates and inflation—will play a big role in financing options for your projects. A stable economy could encourage more investment, while uncertainty might make customers hesitant. So what can you do?

• Plan for Variability
  Be prepared for fluctuations in financing options based on economic conditions. Having a flexible budget can help accommodate unexpected changes.
• Stay Informed
  Keep an eye on economic indicators and policy changes after the elections. This will help you make informed decisions about project timing and financing. Look at the trading markets, federal interest rates, housing trends and consumer pricing indices.
• Explore multiple funding sources
  Consider various financing options, including traditional loans, public funding, or private investments, to secure the best terms for your projects.

Hitting ‘print’ on this the week of the U.S. election is interesting timing. We will keep our ear to the ground over the few weeks leading into the end of the year and look to Q1 2025 for a full download of policies that will affect you and the building industry.

There’s Beer in my Insulation

In 2022, students at Technical University of Munich joked that they should do something with the large volume of hops waste generated by the beer industry in Germany. While some hops waste can be used as fertilizer or biogas, the majority is dumped and contributes to greenhouse gases as they break down, and sometimes start fires. The students formed a startup called HopfON, where they turn the hops into a material that can be used in acoustic panels, thermal insulation, and building panels, with an eye on drywall alternatives as a next step.¹ This type of innovation, albeit on a small scale, provides solutions to cutting greenhouse gas emissions that are fueling climate change and extreme weather events.

These innovations are important, as climate change impacts not only humanity and economic costs but also affects our ability to produce and access goods.

The Panama Canal drought issues have eased due to rain and adding a third water recycling lock. This is good news for shippers, including one that paid $2.4 million in addition to the standard fee of $400,000 in 2023 to skip the line at the canal.² But there is an expectation that drought will return. As a major shipping route with 6% of the world’s commercial cargo passing through the canal, the Panama Canal Authority are now planning to build an additional reservoir that will submerge 17.7 square miles of land and require relocation of 2,000 people.³

Higher than normal temperatures have led to drought in South America, southern Africa, and parts of the Mediterranean and eastern Europe, affecting food supplies, energy production, and transportation.^4,5 Russia, the largest wheat exporter, declared a state of emergency due to drought in its fifth-largest-grain-producing region.6 Drought in British Columbia, which is a significant softwood lumber producer, exporting 55% of its softwood lumber to the US,⁷ has around 180 wildfires burning, but this could be eased by the high likelihood of higher levels of precipitation this winter.⁸

Ten counties in Ohio have been declared a primary natural disaster area from drought by the Department of Agriculture,⁹ even as Hurricane Helene made landfall in September. With a high loss of life, and damage to the interstate system that will require months to repair, slow movement of goods is likely. Helene may raise prices by up to 20%,¹⁰ with complaints of price gouging for necessities being reported.¹¹ There is anecdotal news of at least one manufacturing plant which was damaged that produces construction-related materials. The impacted area is also home to two major carpet and flooring manufacturers.

Spruce Pine, a small town in North Carolina devastated by Helene, received over 24” of rain that could disrupt the tech supply chain. Spruce Pine is a major source for ultra-high-quality quartz and has restarted operations.¹² The rail system that services the mine, a critical supplier for materials for semiconductors and solar panels, was damaged by Helene.¹³ With 744 roads fully or partially closed, this could make transporting these quartz materials more expensive.¹⁴ Since Helene made landfall, and also affected by middle east tensions, we saw an increase in oil futures, but this has reversed as Israel’s response to the October 1st action Iran took against Israel did not damage any oil facilities.¹⁵ Another strong hurricane named Milton made landfall near Tampa on October 9. This will further lengthen and complicate the recovery and impact factories and regional produced products, like localized concrete batch plants. There have also been reports of looting, and there has been an increase in unemployment claims in Florida, affecting its economy and budget.¹⁶

“Our greatest glory is not in never falling, but in rising every time we fall” - Confucius

The Middle East conflict that ignited on October 7, 2023 is now over a year old. It has expanded to include seven countries/areas including Israel, Gaza, Lebanon, Golan Heights (Syria), Iran, Yemen, and the U.S.^17,18The Iranian-backed Yemeni Houthi Rebels are threatening to accelerate their attacks on vessels in the Red Sea as evidenced by two recent attacks.¹⁹ There have been over 100 ships attacked, two sunk, and one hijacked since last November.²⁰ These attacks have forced ships to reroute from the Suez Canal to sailing around the southern tip of Africa. This affects 12% of global trade, adds up to 10 days of transit time,²¹ and costs as much as $1 million in additional fuel to each ship (around $700 per container),²² impacting both schedule and cost of products traversing that area.

But this conflict is not politically limited to the Middle East. There seems to be a deepening alignment between Iran, China, Russia, and more recently North Korea, whose interests are often contrary to U.S. interest.²³ China and Russia recently held joint naval exercises in the western Pacific,²⁴ and there are Chinese and Russian vessels patrolling the Bering Sea.²⁵ In response, the U.S. has deployed military ships, fighter jets, and personnel to Alaska to provide security to the U.S. state.²⁶ This is expected to continue.²⁷ And more recently North Korean troops have been deployed in the Kurkst region of Russia, signaling a depending partnership between the two nations.²⁸

Tensions continue to grow between China and Taiwan, a U.S. ally. U.S. Intelligence has determined that China intends to take Taiwan, by force if necessary,²⁹ as supported by Lin Jian of the Chinese Foreign Ministry who said, “Let me be clear: Taiwan independence separatism is a dead end, and what the U.S. has done to assist the Taiwan independence attempt by arming Taiwan will only backfire,”³⁰ signaling additional tensions between the U.S. and China. The Taiwan Straights is an important shipping lane, with one half of the world’s container ships passing through it annually,³¹ so instability in this region could impact global freight rates as well.

Taiwan has another strategic importance—semiconductors.³² And while there are many chip plants under construction in the U.S., these will take time to come online. Additionally, Taiwan’s TSMC (Taiwan Semiconductor Manufacturing Co Ltd) is a world leader in chip technology and is a critical manufacturer for U.S. tech giant NVIDIA. TSMC recently reported that it has developed a 2-Nm technology that puts it 10 years ahead of China’s technology.³³ With the growth of AI and data center construction (the U.S. data center market size was valued at USD 50.76 billion in 2022 and is expected to have annual growth of 10.7% through 2030),³⁴ disruption to this supply chain could be critical.

Why is this important?

China, Russia, and Iran are significant suppliers of many raw materials, with China and Russia being #1 and #4 respectively for rare earth elements (16 materials used for items like magnets, polishing powders, metals, glass, ceramics, batteries, petroleum refining, and electronics), with a combined total of 48% of the worlds reserves.^35,36 They are significant producers of many of the world’s critical minerals, which are materials that are essential to the economy (like Gallium, Magnesium, and Tungsten).³⁷ Russia, Iran, and China are ranked 1, 5, and 6 respectively in natural resources:³⁸

#1 Russia: Coal, oil, natural gas, gold, timber, and rare earth metals

#5 Iran: The fifth-largest crude oil producer in OPEC and the world’s second-largest natural gas producer. Other natural resources include coal, chromium, copper, iron ore, lead, manganese, zinc, and sulfur.

#6 China: 90% of China’s resources are coal and rare earth metals. Other natural resources include timber, oil, natural gas, gold, aluminum, and critical minerals. China also produces 54% of the world’s steel,³⁹ and 57% of the world’s glass.⁴⁰

If the continued breakdown of relations between the U.S. and Russia, China, and Iran leads to a limit of supply of these products, it would mean the U.S. would have significant challenges to overcome.

While there is plenty of uncertainty, like the Presidential election and global politics, there are things DPR is already doing to help keep our projects on track and our customers informed. A recent article by For Construction echoes some of these actions that can help ensure supply chain resiliency:⁴¹

“Life isn’t about waiting for the storm to pass, it’s about learning how to dance in the rain” - Vivian Greene

But there is plenty of good news. The Global Supply Chain Pressure Index maintain an “average” amount of pressure on our supply chain.⁴² Although unemployment has been rising, it remains relatively low, and ticked down slightly in September on a strong jobs report, exceeding expectations.⁴³ AGC reported September increases in jobs for specialty contractors of 25,000.⁴⁴ There is, however, continued pressure on available labor, as evidenced by the quick suspension to the U.S. East coast dockworkers strike.⁴⁵ The strike was suspended after only 3 days, which is good news, since it is estimated that for each day of shutdown, it takes from four to six days to catch up. Labor and management have until January 15th to finalize the terms of the contract to prevent another work stoppage.⁴⁶

At 2.5%, interest rates are at their lowest levels since February of 2021.⁴⁷ The Federal Reserve cut interest rates for the first time since 2020, and signaled its intent to have additional cuts in 2024.⁴⁸ However, this may not dampen increases in home prices, as the higher rates we’ve experienced in recent years have caused people to stay put in their current homes, constraining supply, so until this changes, it is not expected that housing will become more affordable.⁴⁹

In general, the increase notices we’re received recently are more typical for ‘normal’ times, and more aligned with inflation, but we still haven’t seen pricing drop back to pre-COVID levels. The stock market is having its best year since 1997,⁵⁰ and construction material providers like Cemex⁵¹ and Vulcan Materials are being singled out as best construction stock picks, citing infrastructure development, with forecasts of growth of around 5% per year through 2028.⁵²

“The only constant in life is change” - Heraclitus

What are we seeing regarding new offerings and trends?

• To help proactively meet the geopolitical landscape, there has been a shift to onshoring and nearshoring of manufacturing, with the added benefit of bringing jobs home and boosting the domestic economy.⁵³
• In September, Amazon announced Supply Chain, an end-to-end supply chain service for businesses that sell on its marketplace where they will oversee pickup, inventory, fulfillment progress, customer demand, and costs for orders, with plenty of slick bells and whistles.⁵⁴
• 3rd party logistics supply chain leaders are embracing change and figuring out how to leverage AI, citing competitive advantage and quick delivery as two differentiators.⁵⁵

What isn’t new?

Our discipline in construction has been built on a foundation which helps us weather uncertainty. Forbes recently noted the construction industry’s strengths, which include:⁵⁶

1. Planning with precision, allowing for flexibility
2. Building reliable teams
3. Managing resources wisely
4. Emphasizing safety and risk management

These are skills we have in abundance at DPR. Coupled with our Ever-Forward mindset, self-performing teams, and capabilities across our family of companies, we embrace change and continually evolve our business to deliver high-quality projects in an efficient and predictable way.

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: Steve Brooks, Danny Sandler and Chip Allen.