The construction sector was
booming in the mid-to late-2000s, and then the Great Recession grabbed hold and
the industry changed overnight. Layoffs were rampant; dozens of
mega-construction projects stalled; half built buildings dotted the country.
But, after a few years, a slow, but increasingly steady — or at least somewhat
optimistic — outlook started to take hold.
Housing
starts were increasingly rapidly, and passage of the transportation bill, or
MAP-21, put roadwork back on the map. The continuing shale boom
brought a need for new rail facilities, accommodations, drillers, and more. And
American ports were pouring money into upgrades at their sites to accommodate
the expected larger ships once the Panama Canal expansion finished. So,
things had started to offer a bit of hope.
Then came uncertainty over
the debt ceiling, and the looming debt default. For the past three months,
the government data — when it was available — has shown a slight downward trend
in many parts of the architectural, engineering and construction
industry. And that has three industry economists somewhat worried.
Bernard Markstein, chief
economist at Reed Construction Data, Ken Simonson, chief economist at the
Associated General Contractors of America and Kermit Baker, chief economist at
the American Institute of Architects were the featured speakers at the Oct. 17
webinar “The 2014 Outlook: Emerging Opportunities for Construction.” They
each mapped out what they’d seen this year and where they thought the industry
was headed next year and beyond.
Budget uncertainty
Last November, it was the
looming “fiscal cliff” that concerned Markstein.
This year, it’s the potential
ramifications of the debt-default debacle and federal government shutdown.
“Economic growth is barely acceptable,” Markstein says. And “the shutdown
has not helped. It’s probably cost us a 1/2% in fourth quarter GDP
growth, annualized.” He believes some of what was lost will be recaptured
in the first quarter of 2014, but not all of it. “Washington has created
uncertainty,” he said.
Outlook: The positives going forward
Construction spending
forecast by Bernard Markstein, Reed Construction data
Baker sees residential
construction as a positive moving forward. Averaging estimates from
sources such as Wells Fargo, Standard & Poor’s, the National Association of
Home Builders and Fannie Mae, he expects a 22% increase this year, followed by
a rise of 28% and 29% in 2014 and 2015, respectively.
The home improvement market
is another space where there’s optimism. Although about $267 billion was spent
there in 2011, it was down from its high in 2007. But, spending didn’t
decline as much as new construction did, and this market could regain most of
its losses this year. Reasons for this, Baker says, are the surging
demand for rental properties that have put off remodeling, as well as an aging
population who will need home retrofits, as they want to age in place.
A positive sign for the
nonresidential building sector is the AIA’s Architecture Billings Index that
points to an “emerging upturn,” according to Baker. He noted that private
nonresidential spending saw a spike in 2012, but since then has “cooled off.”
And while the stimulus caused
a surge in public spending, reaching a peak at the end of 2009, early 2010,
spending in that segment has remained low. Baker sees “little
improvement” and thinks it will be the same next year.
Baker expects that “2014
should see solid upper single-digit growth in construction spending.”
Simonson concurs, saying that he expects to see a 6% to 10% growth in spending
each year from 2014 to 2017. Markstein notes that while nonresidential building
construction has had difficulties, he expects it to improve later this year and
do even better in 2014 and 2015,
Markstein and Simonson are
also positive on construction spending in the manufacturing sector.
Markstein sees companies begin to reshore due to rising global wages and the
more dependable U.S. infrastructure. Simonson notes that spending in this
segment could grow “sharply” if the federal government can begin to get things
done.
Outlook: The challenges going forward
Simonson and Markstein say
that there will continue to be less spending on education construction,
something that could continue through 2015.
There’s likely to also be
less need for office space and retail structures as employers cut back on job
creation and consumers switch to online shopping, according to Simonson.
Employment trend concerns:
AGC
In addition, once the
transportation bill, MAP-21, expires, highway spending could go down
dramatically, according to Simonson who doesn’t think that Congress will be
willing to increase funding.
Baker notes that sustainable
improvements – often led by energy-efficiency incentives – were the strongest
niche in home improvements over the past few years. As energy prices
moderate and government spending faces curtailment, he wonders if the demand
for energy efficient retrofits will stay as strong.
Simonson also sees increasing
concern in the industry about a growing shortage of skilled workers (see
graphic to left, and notice “pink” creep in last few months). Hundreds of
thousands of construction industry of employees lobs their jobs in the
downturn. Sporadically, construction employment has shown some
gains. However, many left the field, and a recent AGCofA show that a
labor shortage is in the early stages in many areas.
Source: Smartblogs.com
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