The ACEC Research Institute recently released two reports: the 2024 Economic Assessment of the Engineering and Design Services Industry and the Engineering Business Sentiment 2024 Q4 report, both of which point to continued optimism for the industry and its firms, albeit somewhat softened compared to previous quarters.
Now in its fifth annual release, the report focuses on the key economic drivers of the engineering and design services industry. It seeks to describe, measure, and analyze the economic significance of the industry and to highlight its inextricable connection to the health of the U.S. economy. All told, the industry added $656 billion to the U.S. GDP in 2023, supported well over 5 million jobs directly or indirectly, and contributed nearly $92 billion to federal tax coffers and almost $44 billion in state and local taxes.
Overall, the report found that the engineering and design services industry has continued to build on its year-over-year post-COVID-19 gains, growing 5.5 percent in 2023 to $436 billion, with much of that growth driven by infrastructure projects. This marked a return to pre-pandemic growth patterns. These gains, while strong, were tempered by inflation and rising interest rates, which continue to be a headwind to the industry. As to the latter, the Federal Reserve’s aggressive rate hikes in 2023 had a dampening effect on the residential construction sector. Conversely, nonresidential and nonbuilding construction, flush with government funding from the Infrastructure Investment and Jobs Act and the Inflation Reduction Act, remained on an upward trajectory.
Still, as the industry finds itself with more work than ever, it also continues to face significant workforce challenges driven by the dual effects of an aging workforce coupled with an ongoing shortage of skilled labor. Industry employment grew more than 3 percent in 2023, but worker shortages persist despite a slight decrease in job openings versus new hires.
For the first time, this year’s report examined the potential impact of emerging technologies on the engineering and design services industry. With artificial intelligence (AI) identified as a key trend, the authors note that this technology is rapidly gaining traction with firms. “Currently, around one-third of firms are either implementing or planning to incorporate AI into their workflows,” the authors write.
Industry revenue growth is expected to cool over the next year as the construction industry feels the impact of higher interest rates. That said, year-over-year growth at an average of 3.6 percent per year is expected to continue through 2029, with revenues anticipated to hurdle the half-trillion-dollar mark by 2027.
For yet another quarter, sentiment remains extremely positive for firms and for the overall industry. In this report, member firm leaders from around the country and from firms of all sizes were asked to weigh in on the current state of the industry and its direction. The survey uses a Net Rating methodology, which is calculated by subtracting the negative ratings from the positive ones. Therefore, a positive Net Rating indicates that overall sentiment is optimistic, while a negative Net Rating indicates an overall pessimistic sentiment. The higher the number, the stronger the sentiment.
The Net Rating for the industry is +83; for firms’ finances, the Net Rating is +85. Optimism about the U.S. economy was nearly steady compared to Q3, declining two points for a Net Rating of +36.
Looking ahead, respondents continue to be optimistic about the future of both the industry and their own firms, although both have declined since the last quarter. Sentiment for the future of the overall U.S. economy also declined eleven points from Q3 to +11, with general economic uncertainty, political uncertainty, and inflation/rising costs fueling this more negative sentiment.
Workforce challenges were once again a persistent theme throughout the responses, with more than half of firms (51 percent) reporting that they continue to turn down work due to labor shortages. Among firms turning down work, most (83 percent) are being more selective about the projects they are selecting, down from 88 percent in Q1. Twenty-six percent of firms also indicate they are turning down good, profitable projects. That represents a 2 percent increase from Q1.
“These reports point to another good quarter—and year—for our industry,” said ACEC Research Institute Chair Mike Carragher. “That’s the headline. But there are some data points that are not necessarily warning signs but rather are reminders that even our significantly countercyclical industry is not immune to external factors.”
Both reports are available through the Institute’s website. Scan the QR code.