FMI Construction Outlook 3rd Quarter, 2017

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Total Construction Put in Place, Estimated for the U.S.

• Total construction spending put in place for the U.S. is forecast to end up 4% in 2017 compared to 2016.
• Looking ahead to 2018, FMI continues to forecast a 5% increase in total construction spending over 2017.
• The primary growth segments in 2018 are expected to include residential, commercial, lodging, office and manufacturing—all with forecast growth of 5% or more. Most other segments are likely to grow roughly with the rate of inflation and may therefore be considered stable. Sewage and waste and water supply are the only segments expected to decline in 2018.

Residential Building

Single-Family

• Unemployment at or below “full employment” rate and wage improvement creating many first-time homebuyers
• Home sales up, creating a shortage of housing stock in many metropolitan markets across the U.S.

Drivers: unemployment rate, core CPI, income, mortgage rate, home prices, housing starts, housing permits

Multifamily

• Vacancy rates remain at historical lows
• Tight inventory of houses for sale, driving many to multifamily
• Potential overbuilding beginning to occur in some markets

Drivers: unemployment rate, core CPI, income, mortgage rate, home prices, housing starts, housing permits

Improvements

• New homes market has been influencing above average improvement investments
• Rising home prices, starts and sales in select markets will continue

Drivers: unemployment rate, core CPI, income, mortgage rate, home prices, housing starts, housing permits

Total Construction Spending Put in Place 2016 and Forecast Growth (2016-2021 CAGR) by Construction Segment

Total Construction Spending Put in Place 2016 and Forecast Growth (2016-2021 CAGR) by Metropolitan Statistical Area

Nonresidential Construction Index (NRCI)
Score Since Inception Q1 2010 to Q4 2017

(Scores above 50 indicate expansion, below 50, contraction)

Nonresidential Building

Lodging

• Coming off several years of strong double digit, year-over-year growth since 2012.
• Supply outpacing demand causing increasing vacancy rates

Drivers: occupancy rate, revpar, average daily rate, room starts

Office

• Still seeing positive growth, but moderating after double-digit gains during the past three years
• Slowdown in high-tech development of office space is the primary drawback on forecast growth

Drivers: office vacancy rate, unemployment rate

Commercial

• Several traditional brick-and-mortar retailers closing stores in large numbers
• Continued rise in e-commerce as a percent of retail sales driving demand for warehouse and distribution center construction

Drivers: retail sales, CPI, income, home prices, housing starts, housing permits

Health care

• Uncertainty around federal health care policy continues to delay capital investments
• Movement away from large-scale new hospital construction with greater emphasis expected on expansions and renovations

Drivers: population change younger than age 18, population change ages 18-24, stock market, government spending, nonresidential structure investment

Education

• Increasing K-12 enrollment in more than half of the states
• Greater use of flexible space to accommodate year-round school and reduce need for new facilities

Drivers: population change younger than age 18, population change ages 18-24, stock market, government spending, nonresidential structure investment

Religious

• Ongoing improved (and in many cases creative) space utilization
• Demographic trends and patterns are shaping demand for facilities across various markets

Drivers: GDP, population, income, personal savings

Public Safety

• Local governments facing fiscal constraints
• Trump administration favors privately run prisons

Drivers: population, government spending, incarceration rate, nonresidential structure investment

Amusement and Recreation

• Several big-budget sports stadiums are underway with others in planning
• Increased casino investment seen nationwide

Drivers: income, personal savings rate, unemployment rate, employment

Transportation

• Airports planning accommodation of new wide-body aircraft
• Needed repairs at hurricane-damaged ports
• Trump administration proposing to cut the Department of Transportation budget

Drivers: population, government spending, transportation funding

Communication

• Innovation and technology demands are increasing more rapidly than ever
• Connectivity is increasingly becoming a requirement for local and regional economic activity and growth

Drivers: opulation, security/regulation standards, private investment, innovation/technology investment

Manufacturing

• Manufacturing capacity utilization rates remain below historical averages
• Many planned manufacturing facility upgrades (Toyota) and additions

Drivers: PMI, industrial production, capacity utilization, durable goods orders, manufacturing inventories

Nonbuilding Structures

Power

• New power-generating facilities coming online
• Approval of Keystone XL pipeline could increase spending by year-end

Drivers: population, industrial production, government spending

Highway and Street

• Federal funding to remain flat
• Greater dependency on state and local governments for infrastructure additions and improvements

Drivers: population, government spending, nonresidential structure investment

Sewage and Waste Disposal

• Similar situation to water supply
• Uncertainty regarding current Trump administration decisions about the EPA

Drivers: population, industrial production, government spending

Water Supply

• Local governments caught in an unsustainable financial situation resulting from eliminated or reduced federal assistance but maintained mandates and regulations

Drivers: population, industrial production, government spending

Conservation and Development

• Federal budget cuts and the current administration’s reprioritization of programs continue to be a drag on conservation and development spending

Drivers: population, government spending

 Source: FMI.net