Both private and public sectors appear to be benefitting from falling interest rates and a positive outlook, according to a construction economist.

Construction market stress increased despite a sharp drop in project cancellations, according to the latest report from Cincinnati-based ConstructConnect.

Abandonments plummeted 49.8% in September, according to ConstructConnect’s Project Stress Index, a measure of construction projects that have been paused, abandoned or have a delayed bid date.

But despite the good news around fewer abandonments, the amount of work put on hold jumped 9.8% last month. That drove the overall 16.7% increase in the Project Stress Index over the past 30 days, according to the report.

“While [September’s PSI increase] is a significant increase month over month, August’s reading was revised lower, representing a three-year low,” said Michael Guckes, chief economist at ConstructConnect. “We must also remember that the index has been trending sharply lower in most months of 2024. Only when compared against a record low does September’s reading seem exceptionally elevated.”

Although September’s reading was considerably higher than that of recent months, the latest results are well within historical norms, said Guckes.

Rising optimism around lower interest rates may have been keeping some developers in recent months from stalling or abandoning projects, he said. The Federal Reserve cut interest rates by 0.5 percentage points on Sept. 18.

The private sector posted significant improvements, with project abandonments falling 9.4% compared to the same period in 2023, according to ConstructConnect. Meanwhile, projects put on hold dropped 6.8% year over year, reflecting growing confidence in stabilizing market conditions, said Guckes.

Delayed bid activity remained nearly flat with a 0.1% decline, according to the report.

Nevertheless, while optimism around lower interest rates is beginning to reduce stress in the construction market, the impact of high borrowing costs still lingers. For example, weak demand in certain sectors and financing conditions continue to impact overall private construction spending activity.

Public projects also posted reduced stress levels, with projects put on hold and abandonments falling 17.6% and 5.5% compared to the same period last year, respectively, according to ConstructConnect.

“Both sectors appear to be benefitting from falling interest rates and an overall positive outlook for the economy with many believing a soft landing to be within the Fed’s reach,” said Guckes. “Project Stress Index results of recent months appear to be moving with these broader sentiments. Such broad optimism appears to be driving both private and public sector stress readings lower.”

Source: constructiondive.com