Highlights from GovWin’s 2024 State and Local Government Contracting Forecast

2023 was a year of uncertainty where headlines gave government leaders mixed signals—with some voices calling for greater caution while others declared we had ducked any recession and were headed for a more prosperous year.

At Deltek, our team of experts on state and local government contracting has been tracking these trends closely. We recently released our 2024 State and Local Government Contracting Forecast, providing best estimates of how each of our 12 industries will likely trend over the next two years and some of the big factors that will power their growth or support their levels of demand. The statistical model that our reports and forecasts are based on considers both historical trends and the current state of the economy. Similarly, government officials who are thinking about their staff, budgets, and spending also have to monitor current economic trends that ultimately affect their revenues and plans.

Here are three key findings from our recent 2024-25 forecast report for SLED contractors to keep in mind as they perfect their business development plans. 

1. 2024 Presents a Slowing but Resilient Economy

The pandemic, inflation, geopolitical stress and interest rate hikes contributed to a turbulent 2023 with the expectation of a recession in the first half, but the economy defied expectations and continued to grow. Some economists suggested that a mild recession could still happen last year, but that was also avoided, resulting in a year that was cautious but ultimately consistent. Experts and economists now look at 2024 as a potential candidate for a recession, and the consensus (based on forecasts from last Fall) does show a slowing in the chart (see below) but not an outright decline.

GDP is shown here in real terms, measuring continued growth above inflation. Experts are uncertain whether the U.S. can escape a recession entirely, but they believe if it occurs it has the potential to be mild and low impact, which would then be a positive result for a SLED (State, Local and Education) market that most fears a sudden shift to declining business activity and greatly reduced tax revenue. Economists have varied opinions on this issue, from optimistic to careful, but they admit no one can forecast 2024 with a high degree of certainty.

2. Most Industries Expected to Fully Recover by 2025

The 12 industries all saw major declines in bid volume in 2020 because of the pandemic, but these were not evenly distributed across the sectors (see below) and the timing of the recoveries has varied considerably. These differences are based on the nature of the industry, changes in use or demand, political priorities and whether the products and services offered are more critical to day-to-day operations or are more discretionary. 

In the table above we show the projected government bids for each industry as a percentage of the start year (2019), highlighting the years where a given industry reaches at least 100%. We see that overall, the SLED market (based on data through Q3) was estimated to reach a rounded 100% in 2023, signaling the first year showing a return to pre-pandemic overall bid counts. This included seven of our 12 sectors. We anticipate they will show gradual improvement through 2025 to 101%.

There are several industries expected to stay within the 86-99% range by 2025: construction, financial services & insurance, professional business services, technology & telecom and water & energy. This year’s full forecast report shares more insight into individual trends, growth rates, profiles and summaries for each industry.

3. Alternative Forecasts Highlight Risks & Opportunities

In the baseline forecast we see bids reach 99.6% of 2019 levels in 2024 and then 100.6% in 2025. This stable pattern indicates a resilient market supported by stimulus funds with spending reflecting a careful, relatively measured approach without major declines. In this scenario, the economy could experience a minor slowdown, but a significant recession would be dodged.

To illustrate a broader range of possible scenarios, the chart below demonstrates high and low alternative forecasts through 2025.

The “high” forecast assumes the best possible fiscal and economic conditions with no recession or any real slowing happening. In this case, we would expect 102.9% of pre-pandemic levels in 2024 and increase even further to 105.2% in 2025. On the opposite end, the “low” alternative assumes undesirable conditions in the economy and SLED government, such as a major recession unfolding in 2024-25. This would result in a significant decline in bids and RFPs to around 95% of normal.

SLED governments will keep a close eye on the health of the economy in 2024 and modify plans and schedules accordingly based on the overall outlook, as well as the available funding and importance of each project. But SLED governments still have a few more years left of federal stimulus packages that can pay for a range of products and services and continue to provide a cushion and upward support for this market at a time of uncertainty.

Takeaways for State and Local Government Contractors for 2024

Overall, the picture our research paints is one of a healthy and stable market that should continue to trend sideways after largely recovering from the downturn in 2020. Because of the positive effect of stimulus on SLED budgets and fiscal confidence, decision-makers are generally not actively canceling or postponing projects. In the absence of clear evidence of a recession starting, SLED governments are focused on restoring status quo operations and funding levels that had been affected earlier by the pandemic. This means more opportunities for government contracts.

If you’re looking to connect with the right government decision-makers to help your business earn their share of SLED government spending in 2024, you need GovWin IQ, the industry’s leading source of government market intelligence. Our intuitive, AI-powered search tools help you make sense of the opportunities out in the market, and our seasoned analyst teams are always happy to provide their expertise to help you pursue the right opportunities. Click the link below to try GovWin IQ today.