The Importance of the AEC Industry to Economic Growth in 2022 and Beyond

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Why is the AEC (Architecture, Engineering, Construction) industry so important to the U.S. economy? The AEC industry represents planning, designing, constructing and maintaining the building blocks of our communities. Buildings, roads, bridges, airports, railways, ports and all of our infrastructure would not exist without the AEC industry. It also means that there would not be any offices, factories, stores or warehouse/distribution centers. These and other buildings constitute the fundamental foundations of a strong economy. 

The importance of the AEC industry economic impact will be even greater post pandemic. The outlook for the industry in the U.S. is positive growth for 2022 and beyond. One major factor for this positive view is the Infrastructure Investment and Jobs Act (H.R. 3684), which is a five-year, $1.2 trillion package providing historic levels of infrastructure funding.  

Indeed, 2022 may identify as the start of several banner years, since much of the monumental new federal infrastructure spending is not expected to reach markets until later this year at the earliest. Yet, it is wise to recognize that pressure from labor shortages, supply chain disruptions, and high prices materials prices could moderate growth.  

The AEC industry is expected to benefit from an improving broader national economy. The economic outlook remains quite optimistic, according to several economists’ forecasts of a projected overall economic growth rate in 2022 of between 3.5% to 4.5%.  

Initial funding allocated by the recently signed infrastructure bill is anticipated to start impacting civil engineering firms in late 2022. Civil engineering firms will benefit from initial engagements requiring the study and design of infrastructure projects. 

Architecture has always been a mirror of the creative, engineering and technological expertise of a community over a period of time. The enormous pressure of our growing U.S. population has escalated the value of land as a commodity. The type and scale of development planned on a valuable piece of land is driven by maximizing the economic potential of that land. Therefore, architecture can be a useful tool for economic growth in a region.  

Historic architecture has helped produce a significant source of revenue from tourism which improves the economy. People travel far and wide to see relevant places with historical backgrounds. Tourism also creates a need for maintenance and repair of historically important structures.  

The architectural practice of retrofitting or adaptively reusing spaces means restoring a building’s character in an historically accurate way, but then it is used as a different space than its original purpose. This translates to increased revenue from the building, as well as achieving the recognition it deserves from people who visit from around the world. 

A bullish long-term economic outlook for construction work is associated with infrastructure that will depend upon the infusion of new funding from the Bipartisan Infrastructure Deal, according to sources from Dodge Data & Analytics 

However, the reality is that the outlook for the AEC sector is not all smooth sailing in 2022. Supply chain disruptions will continue to interfere with project schedules and contribute to price inflation of various construction materials during 2022 and likely into 2023. 

Supplies of many critical materials, including many needed for construction, have experienced shortages that resulted in spiking prices in such materials as softwood lumber, oil, natural gas, or other inputs in production. 

Trucking shortages and logistical congestion at ports continue to contribute to the supply chain problems and the resulting inflated prices for construction materials. Higher prices are now pretty widespread across most materials that are used in the construction space. There is a feeling that materials prices will moderate, rather than decline in the future.  

A critical shortage of skilled labor continues to be a chronic problem in the AEC sector. It has been reported that there are currently just under 350,000 unfilled positions in the construction industry. This is a systemic problem rather than a temporary phenomenon and could certainly dampen construction starts in 2022. 

The architecture and engineering professions are also being impacted by the skilled labor shortage and possibly more serious than it is in construction. The current scarcity of architects and engineers results from a combination of factors. A large number of baby boomers are retiring. These older, more experienced professionals are departing from the work force and architecture and engineering firms are struggling to replace them.  

Companies are struggling to find adequate replacements for retiring senior staff members. It is not possible to replace a 65-year-old architect or engineer with 40 years of experience with a junior architect or engineer right out of college. A disconcerting question has been raised about whether firms will even be able to perform the work because of the shortage of talent. 

AEC industry wages are rising faster than they have for many years because of the shortage of talent. So, architectural and engineering firms find themselves in a quandary. If the firms do not increase pricing, that will put a significant crunch on profits. Professional fees have been artificially low for years in the AEC industry and perhaps now there is some headroom to increase pricing. 

Architecture and engineering firms must be diligent to ensure that they have the necessary staffing levels to keep pace with the growth in job prospects. The emphasis may shift to finding people to do the work rather than finding the work over the next year or two. 

Overall, the AEC industry can expect to enjoy significant gains in 2022 and beyond. Business profitability in the sector is expected to remain on an upward trajectory. However, it is essential to watch for disruptors that may occur to alter expectations. 

Limited resources and the impact of development on our environment and society present ongoing challenges. Sustainability factors are paramount to successful project outcomes in the AEC industry, from exceeding performance requirements to improving cost control. Sustainability must be “Front and Center” within the AEC industry to produce positive outcomes for the social, economic and well-being of our world and its people.  

-Glenn Ebersole, Director of Business Development