All I Want for Christmas is a Little Bad News...

Written by CS Market Research Manager, Curt Fessler. 


All I want for Christmas is a little bad news — at least when it comes to the economy. It is true. We keep getting good news. It seems silly to complain about it, but what the US economy really needs right now is a little bad news. Besides, you know what they say about “too much of a good thing." And all the good news is leading to construction facing pressure from three key fronts: labor, lending, and materials. Allow me to explain.


General Economy

When it comes to the broad economy, so much is going on:

  • The US economy is still running hot. In the last quarter, the GDP grew 5.2%, a lot more than most economists expected. It is the best quarter we've seen in almost two years.


  • We are forecasted to cool in the 4th quarter of this year largely due to labor actions we saw in the summer and the UAW strike.


  • Next year, a 2.4% growth is forecasted. This is a slowdown, but not terrible. There is a possibility of a recession, which isn’t necessarily bad. Recessions can help right the economy. Time will tell.


Job market

The job market is still very strong, with more employed Americans than ever. Unemployment is at 3.9%. There are 1.5 open jobs for every American seeking employment. If the job market cools down a bit, that could temporarily relieve some of the market’s labor constraints. Skilled labor availability is a critical constraint to the construction industry with more than 400,000 unfilled positions. Even a slowdown won’t permanently cure construction’s labor productivity woes, but that would require a whole other series of blog posts!



Inflation peaked last summer at 9% and is now at 3.1%. The healthy goal level is usually 2%, but some economists argue that 3% is now a more reasonable goal. So things are improving. Inflation is slowing, but prices are still going up. Unless we stick a “soft-landing, we need to see more slowing before we get some relief.


Economics is a lot like physics. For every action, there is an equal and opposite reaction. Interest rates are at  5.5%. These high rates hover close to 2006-2007 numbers. Raising interest rates tends to bring down inflation by cooling demand, the job market, and the economy. So, we hope to bring inflation down and reduce interest rates in time before they do not do too much damage to the job market or the general economy.


The Federal Reserve Rate
Currently, the Federal Reserve rate is 5.5% and the average 30-year fixed-rate mortgages are just under 7%. So, the high cost of capital and tightened lending standards are starting to slow down the early funnel stages in construction (i.e., demand, which helps prices decrease a little bit.)


federal funds effective rate blog.JPG

Material Prices 

We have seen some material price decreases in construction, but it is still probably not the best time to purchase a new home or embark on an extensive renovation. Materials remain up 38% since January 2020; at least it's not 60% or 100%+ at times for steel. A lot have come down off their peaks, such as steel, aluminum lumber, energy and plastics.

Residential and Non-Residential Construction

Because interest rates are high, residential home building has slowed. And as residential goes, so eventually does the non-residential sector. The non-residential sector is a lot like a freight train: slow to speed up and slow to slow down. And whatever residential does, non-residential will feel it usually within 6 to 12 months. Our hope is to get that little bit of bad news that we need to reduce rates and speed things back up before the freight train slows us down too much. There are some very bright spots in non-residential construction, notably the industrial/manufacturing sector and data center construction, which helps to offset the weak commercial office market.


Consumer spending 

Consumer spending is still really strong. That's what's keeping this economy going right now. In fact, in October, consumer spending was the highest month recorded since 2010. So we, as American consumers, are spending money at a record clip. We had a record Black Friday and Cyber Monday. Things are cooking in the consumer economy.


Why is this? Even though wages have not kept up with inflation, more Americans are working. So there's more money in the economy. However, speaking of a little bad news, we've seen in recent reports that Americans are depleting their savings, and a lot of those pandemic-era savings are decreasing. We're also taking on household and credit card debt at a record clip. That's something to watch out for. As savings dry up and debts get more expensive with high-interest rates, it should contribute to slowing the economy.


So bad news (just a little) would be good news.


  • In some rare and hopefully not self-defeating foreshadowing, the Fed has signaled that there could be as many as three rate cuts in 2024, perhaps coming sooner than expected. Upon that announcement, the stock market hit an all-time high! They acknowledge that they anticipate some softening in the job market and GDP, but the levels they cite are still historically very strong! Could that be the Goldilocks “little bit” of bad news?


  • The aforementioned would represent the illusive "soft-landing" approach we hear about in the news. That would be defined by inflation, cooling back to the 2% range without seriously impacting the job market or the general economy.


  • The current problem is that inflation is still slightly north of three, while the job market and economy have remained strong. We are near a "tipping point," but nothing has "tipped to the point" of the Fed actually acting. It sounds like that is more and more likely in the new year!


A lot changes day to day in the economy meaning a lot remains to be seen. In the meantime, enjoy the holidays and hope for the best (and a little course correction) in 2024. Happy New Year!

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