2023 engineering and construction industry outlook
Preparation is key for the year ahead
2022 got off to a strong start for the engineering and construction (E&C) industry but was met with several strong headwinds, including rising costs and labor shortages. How can businesses navigate continuing volatility to thrive in a competitive market? Our 2023 outlook explores five engineering and construction industry trends that can help companies differentiate themselves and capture growth in the year ahead.
Driving growth as challenges and competition increase
The US engineering and construction industry began 2022 on a bright note after achieving strong growth of 8% in construction spending in 2021.1 But a closer look at current market dynamics suggests that 2023 will likely experience differentiated growth rates across different industry segments.
On the one hand, the nonresidential segment is likely to be buoyed by funds entering the market from the Infrastructure Investment and Jobs Act and the CHIPS and Science Act of 2022. On the other hand, residential construction companies are relatively more pessimistic about the industry outlook for the next year compared to other segments. So, while some segments may be more bullish than others, there are headwinds—from inflation to supply chain issues—which may continue to affect the industry overall in the coming year. Our 2023 outlook explores five key trends to watch closely.
Five engineering and construction industry trends to watch
One. Market dynamics
Industry segments experience different growth trajectories and increased competition
2023 could be a different year for the industry, with heightened uncertainty due to high inflation, rising interest rates, and bifurcation across various industry segments. Companies are keeping an eye on how their backlogs will play out in 2023, especially during the second half of the year. While many companies have substantial backlogs (specifically in energy-related construction and data centers), as they get through the back half of 2023, they may see the impact of a potential economic slowdown on their deliveries.
Two. Supply chain
Increased lead times and volatile material costs pressure margins
Over the last two years, the COVID-19 pandemic, transport bottlenecks, and geopolitical uncertainties have exposed vulnerabilities in the E&C supply chain. These ongoing disruptions are expected to drive the E&C industry toward new business models, supported by new ecosystems that bring innovative products and services to serve the unique needs of different end markets.
Three. Future of work
Talent pressures and shifting talent models force industry to rethink workforce strategies
The E&C industry remains significantly short of skilled workers, further exacerbated by a tight labor market. Even though the construction industry has a strong pipeline of projects and spending, especially the infrastructure buildouts, it’s challenged to meet the demand due to a persistent shortage of workers and high turnover. With rising inflation and a tight labor market, companies may have to raise wages and expand benefits to attract and retain employees in 2023.
Four. Emerging technologies
Developers and contractors further invest in emerging technologies to drive efficiencies
While the E&C sector has been historically slow to integrate and adopt digital technologies, industry players are now increasingly paying attention to and leveraging emerging technologies. Most E&C companies are utilizing digital technologies to expand business opportunities and boost profits by reducing costs in the long run and enhancing project execution. Further, with increased global supply chain disruptions, increased competition, worker shortages, and skyrocketing material prices, the need for digital transformation in construction has become much stronger.
Five. ESG and sustainability
Industry evaluates new practices to deliver positive societal impacts
Many customers are becoming more sustainability conscious and placing greater pressure on developers to lower the carbon footprint of new construction. The increasing global focus on climate change could incentivize construction companies to factor sustainability into their projects, construction processes, and designs.