The outlook for construction remains positive. But uncertainty has increased since Election Day.
Construction spending and employment continued to increase in 2016, as they have each year since bottoming out in early 2011. However, the industry seemed to hit the pause button for several months in mid-year, and year-over-year growth slowed.
For 2017, total construction spending appears likely to grow by low- to mid-single digit percentages. However, the mix will change.
Residential construction has a mixed outlook. After years of rapid growth, multifamily starts and permits began to decline in 2016, and permits no longer exceed starts. That’s a strong warning sign that the number of projects will taper off, once current starts are completed in late 2017 or early 2018. In contrast, single-family construction should continue its uneven but generally upward pace.
Among private nonresidential segments, office construction activity may be the most vibrant in 2017, with several cities sprouting expensive high-rise projects. However, the once-dominant part of that market-low-rise suburban office parks, surrounded by acres of parking and grass-remains moribund.
Energy-related construction may be a contender for “most improved player” award. Wind, solar and gas-fired generation projects picked up speed in 2016 and have equally bright prospects in 2017. Meanwhile, pipeline work, which was repeatedly blocked in the past few years, should get a green light to proceed in many more locations.
Several categories are at risk of slowdowns. Manufacturing construction went from very strong in 2015 to slightly negative in 2016 and appears headed lower still in 2017, before staging a possible, modest comeback in 2018. Warehouse and hotel construction have been extremely hot for several years and now seem to be approaching saturation in some markets. And hospital construction may slow until hospitals have a clearer idea of utilization and reimbursement rates for their services under whatever replaces the Affordable Care Act.
On the public side, Election Day brought good news for primary and secondary school construction, as voters in many school districts have approved the largest volume of bond issues in a decade. But a shrinking number of college students, along with tight state budgets, make the prospects bleak for state university and community college construction. Public buildings and other state and local construction funded out of general revenues are also unlikely to pick up the pace of spending.
The biggest unknown relates to infrastructure spending. So far, there are no specifics on what additional revenues would be dedicated to highways, other transportation facilities, or still broader categories of infrastructure. Absent those specifics, it seems likely that there will be little change from 2016 in spending on most types. The one exception is airports, many of which have ambitious multi-year expansion and modernization plans, generally funded by airlines and passengers, rather than taxpayers.
As has been the case for several years, contractors’ biggest worry is finding enough workers. In a 2016 survey by the Associated General Contractors of America, more than two-thirds (69 percent) of members reported difficulty filling hourly craft positions, and half said they were having trouble finding supervisors or project managers. Companies have been increasing pay, benefits and in-house training; partnering with local schools and workforce development agencies; and investing in labor-saving methods and machinery. But the challenge is sure to continue in 2017, and probably for several years to come. Still, most contractors would rather have that problem than not having enough projects to bid on.
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Ken Simonson has been the chief economist of the Associated General Contractors of America since 2001. His weekly summary of economic news relevant to construction, The Data DIGest, goes to 47,000 subscribers.