Total construction put-in-place (CPIP) for 2015 is predicted to grow 8 percent according to the latest report from FMI. This supports earlier FMI predictions that CPIP will top $1 trillion in 2015, something the market has not seen since 2008. This indicates that the economy is on track for a resilient recovery.
“The current growth cycle appears to be broad-based and sustainable,” said Randy Giggard, managing director of research services for FMI. “Most of the new construction activity is in the private sector. Projects dependent on government spending, especially those involving infrastructure, continue to be at the mercy of politics.”
Despite the long list of challenges the economy is facing, FMI expects total construction put in place to grow 8 percent in 2015 or somewhat faster than in 2014. The biggest challenge faced by contractors this year continues to be finding and retaining the best talent.
Residential construction is expected to grow 9 percent, lodging, 16 percent; office construction, 11 percent; commercial construction, 15 percent; and manufacturing, 11 percent. Even though markets like education and health care will grow a more modest 3 percent and 4 percent respectively, continued slow growth is finally catching up to capacity in some parts of the country, and there is more urgency to grow the talent pool or some contractors will need to turn down new projects. “That is hard to believe, but even at a snail’s pace, the economy is bound to get somewhere after a while, and it is now arriving,” FMI said.
A stronger dollar and lower prices in many markets mask some of the progress, but we are catching up with where we left off in the growth period before the boom busted. However, that doesn’t mean the industry is about to repeat the same cycle.
The oil and gas boom hasn’t totally fallen apart, but it is certainly slowing. That means the loss of some good jobs and wages; however, some of those who lost their jobs in the oil fields may be available to contractors in other parts of the country. Otherwise, the current growth cycle appears to be broadbased and sustainable. That is, at least from the high-level view.
On the ground level, larger cities are experiencing accelerating growth and increases in rents for housing and office space. Some manufacturing regions are expecting more growth even as the oil and gas regions are slowing. Most of the new construction activity is in the private sector.
Projects dependent on government spending, especially those involving infrastructure, continue to be at the mercy of politics. Despite the continuing political brouhaha, the economy is on track for a resilient recovery.
Transportation construction continues at a solid pace, registering 5 percent growth in 2014, and is expected to add 7 percent for 2015 to $44.7 billion. Congress will need to pass a new or renewed transportation bill in 2015 to add some stability as well as funds to the transportation sector. The current extension of Map-21 expires at the end of May. The transportation sector will continue to face some ups and downs in early 2015 due to the dockworker slowdown and volatile oil and gas prices negatively affecting shipments by rail and shipping.
There was better-than-expected growth of 4 percent for highways and bridges in 2014, but the FMI forecast shows a return to around 2 percent growth through 2019. President Obama’s 2015 budget calls for $317 billion over six years for Map-21 and other programs. Currently, the Surface Transportation Program Extension is funded from through May 31, 2015.
Greater investment responsibility will fall to states and local governments in order to maintain roads and streets. Add to that the outlook for lower fuel costs and likely lower tax receipts at the pump, and we expect even less investment across the country. According to a recent report by the American Road & Transportation Builders Association (ARTBA), “The market is expected to be uneven across the country, with highway investment up in 24 states, down in 19 states and Washington, D.C., and within a plus/minus 5 percent in seven states.”
FMI expects solid growth of 9 percent for 2015 and just a bit lower through 2019. The fast pace of multifamily construction is expected to slow to 11 percent in 2015 and slip to 8 percent by 2018.
The inventory for new homes is down slightly to 5.4 months in January, little changed from the same time last year, yet inventory is near record-low territory. Housing starts in January were down 2.0 percent from December but 18.7 percent above January 2014. Foreclosure rates were down 18 percent from the same period last year.
Mortgage rates have also remained low, thus helping potential homebuyers on the edge make decisions to buy now. According to RealtyTrac, foreclosure filings are 1,117,426, “down 18 percent from 2013 and down 61 percent from the peak of 2,871,891 properties with foreclosure filings in 2010. The 1.1 million properties with foreclosure filings in 2014 was the lowest annual total since 2006, when there were 717,522 properties with foreclosure filings nationwide.”
Commercial construction ended up 12 percent at year-end 2014, which is better than earlier expected. We continue to forecast continued moderate growth through 2019, after a 15 percent improvement in 2015 to $65.8 billion. Although we expect slow improvement, the early part of 2015 may be slower due to severe winter weather and the dockworker slowdown. Consumers are still confident about the economy, but they are also remaining conservative in their discretionary spending at least until wage recovery improves, FMI said.