Construction spending projected for moderate growth

Submitted by on Fri, 01/29/2016 - 18:33
{"version":"0.3.0","atoms":[],"cards":[],"markups":[["a",["href","http:\/\/\/aiarchitect\/2016\/charts\/jan2016\/ccf_012916.html","target","_new"]],["strong"],["em"]],"sections":[[1,"blockquote",[[0,[0],1,"View the interactive Consensus Construction Forecast \u003E "]]],[1,"h2",[[0,[],0,"First look at 2017 suggests continued balanced growth"]]],[1,"p",[[0,[],0,"For the first year in recent memory, in 2015 the nonresidential construction sector actually exceeded expectations. After an unusually severe winter in many parts of the country delayed many projects at the start of the year, other obstacles appeared as the year progressed, including a cutback in energy-related capital spending as energy prices fell, a financial sector that remained reluctant to lend into the real estate market, the looming specter of higher interest rates domestically, and a slowdown in the Chinese economy that threatened international economic growth. As recently as last June, the AIA Consensus Construction Forecast Panel was projecting growth in building spending of just under 9 percent for the year, paced by 12 percent growth in commercial and industrial facilities, and a meager 3 percent increase in institutional construction activity."]]],[1,"p",[[0,[],0,"The industry easily blew by those targets, effectively doubling the pace of growth expected by the experts. Through November 2015, building construction spending was up over 16 percent compared to the first 11 months of 2014, with commercial\/industrial spending up 26 percent, and institutional activity up 8 percent. And even with this unexpected acceleration, 2016 is projected to produce healthy growth levels: over 8 percent overall with 10 percent growth on the commercial\/industrial side and 7 percent for institutional facilities. With this panel\u2019s first look at 2017, another year of healthy but more modest growth is expected: just under 7 percent across the building sector, with 7.5 percent for commercial, 5.3 percent for industrial, and 6.7 percent for institutional. With four years of nominal gains in nonresidential building activity in hand and two more years of healthy growth expected, the prospects of the beginning of a modest down cycle beginning in 2018 or 2019 are increasing."]]],[1,"h3",[[0,[],0,"US Economy Continues to Make Progress"]]],[1,"p",[[0,[],0,"The economy continues to gain strength heading into 2016, despite a persistent list of challenges. At the top of the list of concerns is the international economic slowdown, in large part driven by weakness in China. That in turn has affected the economies of countries providing commodities internationally, most notably Brazil, Venezuela, and Russia, all of which are in recession at present. Solid growth in the U.S., coupled with better performance in Europe and Japan, may not be enough to offset the slower growth in China, leading to subpar economic growth internationally."]]],[1,"p",[[0,[],0,"Rising interest rates may also pose a challenge to the U.S. economy. While the Fed\u2019s quarter-point increase in short-term rates in December still keep them at historically low levels, long-term rates for U.S. Treasury bonds have not followed suit because international investors have been looking for low-risk options. Still, low rates have inflated the values of real assets like real estate, so the beginning of an interest-rate upcycle may dampen values of multifamily and commercial properties, thereby slowing construction activity in these sectors."]]],[1,"p",[[0,[],0,"Balancing out these risks to the economy is another set of factors that offer optimism for the outlook. The first of these is the new-found federal government cooperation, with Congress and the Administration recently reaching agreement on the FY 2016 federal budget and debt ceiling. While this bipartisanship may be short-lived, it should be enough to support economic growth for at least 2016."]]],[1,"p",[[0,[],0,"The second positive of the outlook is extended lower-energy prices. The initial reaction to falling energy prices was mostly negative, since it raised the concern of reduced capital spending on energy production. However, the flip side of lower energy prices is reduced costs for consumers and businesses that aren\u0027t in the energy production business. Since the US is still a net importer of oil, lower energy costs mean a boost for the U.S. economy long-term. Our economy is now starting to see the positive effects outweigh the negative ones."]]],[1,"p",[[0,[],0,"A final positive to the outlook is the improved employment situation. In 2015 our economy created almost 2.7 million payroll positions on net, pushing the national unemployment rate down from 5.7 percent at the beginning of the year, to 5.0 percent by the end of the year. The construction industry was a major contributor, adding almost 10 percent of the net new jobs added to our economy."]]],[1,"blockquote",[[0,[],0,"Through November 2015, building construction spending was up over 16 percent compared to the first 11 months of 2014."]]],[1,"p",[[0,[],0,"The strong pace of growth in construction activity has put pressure on its labor force, as the availability of construction labor is now one of the serious issues facing the industry. According to information from the U.S. Census Bureau\u0027s American Community Survey, the construction workforce nationally declined almost 20 percent between 2007 to 2013, from over 12 million workers to under 10 million. However, since the unemployment rate in the construction industry is close to the overall unemployment rate, it\u2019s unlikely that many more construction workers from the boom years will be returning to the industry. In fact, a recent research study by the U.S. Census Bureau tracked the movement of unemployed construction workers during the last downturn. Of construction workers who were unemployed three months or more between 2006 and 2009, 40 percent had returned to the construction industry by the end of 2013 (either recalled by their previous employer or in another construction job), about one-third moved to another industry, and about one-quarter were not employed as of that date. Presumably most of this last category has left the labor market."]]],[1,"p",[[0,[],0,"In addition to increasing compensation for construction workers\u2014and there is evidence that wages are beginning to climb for most of the skilled trades\u2014four other longer-term strategies could help increase the availability of construction workers:"]]],[1,"p",[[0,[1],1,"Attract additional younger workers."],[0,[],0," The industry has always relied on young graduates (mostly men) right out of high school or vocational training programs to provide the next generation of construction workers. Over much of the last decade, there have not been many opportunities in this industry, so these job-seekers pursued other career paths. Now the challenge is to revive interest in this field by better explaining the compensation potential, career growth opportunities, and ability to become a business owner in an area that has traditionally had the most business start-ups of any industry in our economy."]]],[1,"p",[[0,[1],1,"Rebuild training and apprenticeship programs."],[0,[],0," There are many fewer opportunities to pursue training programs in the construction trades than there were in the past. According to the Department of Labor, there were fewer than 20,000 nationally registered active apprenticeship programs in construction in 2014, only about half of the number there were 15 years ago. As recently as five years ago, in the middle of a severe construction recession, there were one-third more of these apprenticeship programs\u2014so as the industry has been growing, training programs have been shrinking."]]],[1,"p",[[0,[1],1,"Restart immigration flows. "],[0,[],0,"Construction is an industry that has traditionally relied very heavily on an immigrant workforce. Given the weakness in our economy during the recession, fewer immigrants were looking to come to the U.S. to pursue economic opportunities. Our economy has now recovered, but pre-recession immigration levels have not. And the political discourse on immigration is certainly not conducive to encouraging more of these potential construction workers to want to do so."]]],[1,"p",[[0,[1],1,"Make the industry more attractive to women."],[0,[],0," Younger women are pursuing a much broader set of career options than their predecessors of a generation or two ago; unfortunately, construction is not one of them. In 2007, at the peak of the construction boom, only 2.6 percent of the construction trades labor force were women, according to the U.S. Census Bureau. By 2013, even with a much smaller labor force and fewer employment options, that share fell to 2.5 percent. Quite obviously, many feel that construction is an industry that is inhospitable to women."]]],[1,"p",[[0,[],0,"The construction labor shortage is already causing problems for the industry. A survey conducted last summer by the Associated General Contractors of America found that two-thirds of construction firms report having experienced labor shortages during the past year. Those shortages are having an impact on construction activity, with 25 percent of firms reporting that they turned down work during the past year because of a lack of labor."]]],[1,"h3",[[0,[],0,"The Construction Outlook"]]],[1,"p",[[0,[],0,"The momentum that the construction market has built up in 2015 will generate a healthy performance for the industry in 2016. For example, the AIA\u2019s Architecture Billings Index\u2014an accurate indicator of construction activity that leads spending in the nonresidential sector by nine to 12 months\u2014had an average score 52.2 for 2014, signaling the healthy growth in construction spending we saw in 2015. The average ABI score in 2015 was just a little lower at 51.5, suggesting another year of healthy growth in 2016."]]],[1,"p",[[0,[],0,"The AIA Consensus Construction Forecast Panel reflects the same outlook. After an estimated 15 percent growth in 2015, the consensus for this panel of experts is just over an 8 percent increase this year, followed by an additional almost 7 percent in 2017. The strongest projected categories for this year will generally come from the commercial\/industrial sectors: hotel at 14.8 percent, office at 12.8 percent, and industrial at 11.9 percent. Recent performance, as well as the generally positive outlook for the major commercial categories, speaks to the strong underlying demand given concerns in key fundamentals for these construction sectors: growth in online purchasing limiting need for retail space; popularity of open-space office design reducing the average space per employee, and rising popularity of Airbnb and other home-sharing options that cut into demand for hotel space."]]],[1,"p",[[0,[],0,"Healthy single-digit growth is expected from most of the institutional sectors this year, led by amusement and recreation at over 11 percent, and the larger education and health care sectors at about 6.5 percent each. Demographics are important drivers for both the education and health care sectors. Additionally, spending on education facilities is buoyed by years of deferred construction and improvements while municipal governments were dealing with serious budget deficits. For health care, the 10 million new enrollees under the Affordable Care Act is creating demand for new and renovated facilities."]]],[1,"p",[[0,[],0,"The outlook for 2017 is for somewhat slower growth in overall spending on buildings as well as in the commercial\/industrial sectors. Pacing growth next year will be the office (8.8 percent growth) and hotel (7.8 percent) sectors, according to the projections of this panel. However, the overall institutional sector is not expected to see a slowdown in 2017, with even modest acceleration expected in the important education and health care sectors."]]],[1,"p",[[0,[2],1,"Kermit Baker, Hon. AIA, is the AIA\u2019s Chief Economist and part of the AIA Economics and Market Research Group, which provides AIA members with insights and analysis of the economic factors that shape the business of architecture. Learn more at\/econ."]]]]}
For the first year in recent memory, in 2015 the nonresidential construction sector actually exceeded expectations.
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This is a screenshot from the Consensus Construction Forecast, December 2015. Click the link below to view individual forecast details.
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