Construction is booming in some areas across the United States, buoyed by two major tailwinds that show no sign of slowing: Private investment in major manufacturing developments and publicly funded infrastructure projects.
The bullish industry sentiment was captured over the past week as Caterpillar, Jacobs and AECOM reported strong earnings and robust pipelines of business reaching, in some cases, all-time highs. The positive earnings from these companies related to construction seemingly reflect some broader favorable conditions in the industry, said Zack Fritz, an economist for industry group Associated Builders and Contractors, or ABC.
"I expect the demand for publicly funded construction services to remain strong for the rest of the year," Fritz told CoStar News. "I don't expect the double-digit growth to continue for years, but I do expect it will stay at an elevated level, especially with these labor constraints and contractors building a back log of business."
Publicly funded infrastructure projects were up industrywide by 21% year-over-year at the close of 2023, he said.
Fritz said spending on highways and streets, as well as for water-related and public-power projects, increased at even higher levels partly tied to a building boom fueled by the Infrastructure Investment and Jobs Act that provided $1.2 trillion in federal spending over five years. President Joe Biden signed the act into law in November 2021, putting this coming year in the middle of a publicly funded bump in business.
Caterpillar, the world's largest construction and mining equipment maker, posted its best year in its nearly a century of operations. The company decided to move its headquarters from Illinois to Texas in mid-2022 to achieve what CEO Jim Umpleby said would be "profitable growth," with that seemingly coming to fruition over the past week with the company delivering record sales, revenues and profits during its fourth quarter.
Speaking to investors Monday, Umpleby said the company's North American business had a strong year in 2023, with the region expected to stay healthy in 2024 with demand from non-residential construction because of government-related infrastructure investments. Caterpillar also said it has seen a jump in business for its data center segment from the rise in artificial intelligence and cloud computing.
Global Growth
The United States isn't the only country upping its game when it comes to infrastructure spending, AECOM CEO Troy Rudd said in an earnings call this week. The consulting and engineering company, once based in the West Coast, moved its headquarters to Dallas in 2021.
"We've seen our early-stage pipeline continue to improve and that's not isolated to the United States," Rudd said during the company's first quarter 2024 earnings call. "The pipeline continues to grow, meaning we have a great, longer-term visibility to growth in the business and particularly in our U.S. infrastructure market.
"When we look around the world, we see something very similar," he added. "We see growth in our pipeline and continued growth in those long-term investments in infrastructure."
Jacobs CEO Robert Pragada told investors upon unveiling earnings for the company's first quarter that the engineering and infrastructure firm saw a strong first quarter with a 7.9% profit that was entirely organic.
"Backlog increased 5% year-over-year, and gross margin in backlog improved 29 basis points year-over-year, boosting confidence that our businesses can continue their profitable growth trends," Pragada told investors.
Jacobs, like its rival firms, have seen an influx of business in the last year coming from government-funded infrastructure projects. The firm, which relocated its headquarters from California to Dallas in 2016, is not only seeing investment in the United States but across the globe.
Recently, the United Kingdom committed to spending upwards of $775 billion on infrastructure over the next decade with some consideration for inflation, which Pragada told investors will benefit the company. Jacobs has also recently secured "some additional large engagements," in the Middle East to build utility and road infrastructure, he said.
Domestically, Jacobs has been awarded the design work for the planned 218-mile high-speed rail linking Las Vegas to Southern California. Like Jacobs, AECOM and Caterpillar have won major projects throughout the world.
Labor Issues Remain
Even as business booms with both infrastructure and major projects, such as Texas Instruments' $30 billion chipmaking campus, ABC economist Fritz said there's a limit to the growth of the construction industry. A lack of labor is the primary reason behind the design backlog and construction pipeline of these companies.
"The industry is short half-a-million-jobs this year," he told CoStar News. "This has been the case for several years and for maintenance workers in the highway and street category, [and] 34% of them are 55 years or older. Being able to back fill these roles and getting younger workers in the industry continues to be an issue."
AECOM CEO Rudd said the firm's headcount continues to increase organically across its large markets. The company also sees a boost in hiring tied to winning marquee projects throughout the world, he said.
Companies are adding construction and engineering employees across the industry, Fritz said. Businesses have been put in a better position to compete for workers in the past year as e-commerce giants have scaled back their growth plans and hiring has moderated, he said.