Road and Transportation Will Drive Growth in the Construction Industry
Forecasters seem to agree that 2019 will continue the ongoing trend of growth in the construction industry, albeit at a slower pace than in previous years. The Dodge Construction Outlook report predicts total starts will reach nearly $808.3 billion, up from the $806.8 billion it projected for 2018.
“The fundamentals continue to be sound, and I don’t think we’re going to be seeing a repeat of what took place in 2008 and 2009,” said Robert Murray, Chief Economist for Dodge Data and Analytics.
A decade ago, the overall economy went into turmoil, then began recovering from one of the worst downturns since the Great Depression. Construction was especially hard hit, causing hundreds of businesses to close or severely cut back on staffing. Millions of construction workers were let go and never returned to the profession.
In 2018, industry unemployment fell to 3.9 percent, nearly the level recorded pre-recession. Construction employment numbers are expected to continue rising. A recent survey of construction executives by the Vistage Research Center found that 64 percent planned to increase hiring in 2019. Another study from Associated General Contractors of America (AGC) showed a large percentage of businesses wanting to hire, if they can overcome the challenge of finding workers. Eighty percent of construction firms reported having trouble hiring hourly craft workers and expect that task to remain difficult or become harder.
“Demand for construction remains strong and pay is rising faster than the overall economy,” said Ken Simonson, AGC’s Chief Economist. “However, contractors are having increasing difficulty finding qualified workers as industry unemployment slides to historic lows.”
Agree to Disagree?
Despite agreement on overall growth, industry experts are not always on the same page with regard to individual markets. For instance, Dodge Data & Analytics sees nonresidential construction as basically flat in 2019. On the other hand, the American Institute of Architects (AIA) projects an increase of 4 percent, led by institutional building with a 4.5 percent expansion.
According to AIA, institutional building includes sectors such as public safety, healthcare facilities, education, amusement/recreation and religious. It projects a rise in each category, with the exception of religious, which it sees as flat.
“At the halfway point of 2018, this panel was even more optimistic,” said AIA Chief Economist Dr. Kermit Baker last fall. “Its forecasts were marked up to 4.7 percent growth in spending for 2018 and an additional 4.0 percent in 2019. If these projections materialize, by the end of the next year the industry will have seen nine years of consecutive growth, and total spending on nonresidential buildings will be 5 percent greater – ignoring inflationary adjustments – than the last market peak of 2008.”
AIA also foresees that the commercial/industrial market will gain 3.4 percent, led by industrial at 4.9 percent. The organization projects office space to expand by 4.1 percent, hotels by 3.6 percent and retail by 2.7 percent.
Transportation To Take Off
Another bright spot, according to both Dodge Data & Analytics and the American Road & Transportation Builders Association (ARTBA), will be transportation infrastructure. Dodge forecasts 3 percent growth in the market, while ARTBA eyes an uptick of 4.2 percent, which is identical to 2018 when airport terminal and runway construction led transportation spending.
Airport-related work grew nearly 40 percent in 2018, and ARTBA believes it will rise by 4.5 percent in 2019 compared to the previous year. It expects ports and waterways to experience 3 percent growth. Additional forecasts from ARTBA include an upsurge in bridge and tunnel work this year and next, after a slowing in the sector for 2018. Public transit and rail construction will increase 5.7 percent, with subway and light rail investment expected to reach a record level.
Public highway and street construction were up in 2018 as well, and ARTBA Chief Economist Dr. Alison Premo Black said greater transportation investment by federal, state and local governments will help drive growth in 2019. ARTBA projects it to reach $278.1 billion, up from $266.9 billion.
ARTBA said highway construction is expected to increase in approximately 50 percent of states and in Washington, D.C., while slowing down or remaining steady in the other half. The real value of public highway, street and related work by state DOTs and local government should ramp up 5 percent to $66.5 billion, according to ARTBA. It also anticipates private highways, bridges, parking lots and driveways to hit approximately $69.1 billion, up from $65.9 billion in 2018.
Black did caution that reauthorization of the current surface transportation law (FAST Act) in 2020 and Congress’ ability to find additional revenue sources may dampen the outlook. “If states start delaying transportation improvement projects in response to uncertainty over the future of the federal program, it will temper 2019 market growth,” shared Black.