3 Economists Give Construction Outlook for Rest of 2013 and Ahead
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.
Reed Construction DataHousing
starts were increasing 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. 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.
Last November, it was the looming “fiscal cliff” that
concerned Markstein.Kermit Baker photo
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
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,photo: Ken Simonson, AGCofA
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.
heat map - construction employment 2013
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, 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 survey shows that a labor shortage is in the early
stages in many areas.
(From NRCA Smartbrief)
Trenton H. Cotney
Florida Bar Certified Construction Lawyer
Trent Cotney, P.A.
1211 N Franklin St
Tampa, FL 33602
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