Click on images to enlarge.
U.S. multifamily housing starts have returned to a level as high as they were before the Great Recession. Single-family starts remain nowhere close to their previous heights. While this indicates gathering pent-up demand in the single-family market, it also reflects a significant change in the way many people want to live. Mixed-use projects, incorporating high-rise living and located at transit sites in city cores, have become much more popular among both an aging population and Millennials. There’s a lot more to like about downtown residences than a generation or so ago, when smog ruled. Now, there are parks and rooftop gardens everywhere. Besides, young and old appreciate the easy access to shopping, entertainment venues, medical services and a myriad of other amenities.
There has long been a debate in the retail sector about whether or not companies should invest in brick-and-mortar locations or put more of their efforts into selling over the Internet. During the past decade, employment in online shopping has soared, while book vendors, travel agents and video rental outlets, among others, have seen a serious contraction in the square footage they occupy. This effect has spread to many other sectors as well. Owners contemplating physical expansions have surprising alternatives. For example, at the level of higher education, students can earn degrees through registering in virtual classrooms; the need for bank branches on every corner is being supplanted by the likes of PayPal and Apple Pay; and the ‘sharing economy’ is taking a bite out of office and accommodation (e.g., hotel/motel) space requirements.
Due to rising labor costs in some key emerging nations such as China, many American manufacturers are beginning to repatriate jobs. The current exceptionally low-cost energy environment is also providing a stimulus for firms that use oil and gas, or their derivatives, as feedstock. At the same time, though, many companies that usually rely on strong foreign sales of their products are being hampered in their efforts by an exceptional rise in the value of the U.S. greenback. There is a benchmark level for an industry’s capacity utilization rate, above 80 percent and probably closer to 85 percent, above which one trend-setting firm will plunge into new investment spending. Its competitors, to stay in the game, will shortly follow, giving rise to what might be termed a ‘copy-cat effect.’
There was one category of employment among U.S. labor market segments that hardly suffered any setback during the hard times in 2008-2009, health care. Hospital construction, however, has been flat since the introduction of the Affordable Care Act, largely due to political events causing uncertainty about its permanence. Recent Supreme Court rulings have established a firmer foundation for Obamacare’s ultimate survival, in one form or another. The aging population, as post WWII baby boomers enter their senior years, assures ongoing strong demand for medical facilities for decades to come. Also, any survey of future hottest job prospects always has care for the elderly at or near the pinnacle of its rankings.
The level of employment in the U.S. construction sector has gradually struggled back from a low of 5.5 million jobs in 2010 to near 6.5 million today. That’s still a shortfall of 1.3 million jobs versus previous peak employment in on-site work before the credit-crunch crisis. The unemployment rate in construction, however, has improved to only 5 percent, which is about as good as that measurement ever achieves. (Notice the marked seasonality in construction employment as illustrated by the rolling hills, during each and every year, in the jobless rate curve.) The obvious conclusion is that many individuals who formerly identified themselves as construction workers have left the industry. This threatens to create labor shortage that will require higher wages; more apprenticeship training; appeals to other non-traditional sources of supply; and a willingness on the part of older workers to stay on the job longer.
For the total value of U.S. construction starts to regain the buoyancy of their 2005 through 2007 levels will require the passage of a couple of years. The improvement in residential initiations, while ongoing, will still fail to wholeheartedly excite. By the end of the forecast period in 2019, the pickup will continue to languish below the prior peak. Nonresidential building starts will creep higher, and having experienced less of a drop than residential work in the doldrums, will explore new better frontiers by 2018. Much of the upcoming enthusiasm in construction may be centered in engineering/ civil undertakings. New and repair infrastructure projects will be a particular priority. Discussion concerning improvements to infrastructure has become synonymous with the need for productivity gains in logistics and quality of life to compete in an increasingly interconnected world economy.
Alex Carrick is chief economist for CMD, Norcross, Ga. He is an awarded author of thousands of articles and is regularly quoted by major news outlets.