At the start of each new year, and especially this year as we head into a new decade, many associations and industry companies come out with forecasts and outlooks for the year ahead. While the past 10 years have had a remarkable amount of expansion, with each year being better than the one before, the shortage of skilled labor is currently standing in the way of continued growth.
Last year ended on a positive note, with both the industrial and commercial components of the Dodge Momentum Index gaining in December, as reported by Dodge Data & Analytics. Overall the Momentum Index increased 1.5% in December, while the institutional component gained 2.3% and the commercial component gained 0.9%. The Momentum Index is a monthly measure of the initial report for nonresidential building projects in planning, and has been shown to lead construction spending for nonresidential buildings by a full year.
The American Institute of Architects (AIA) is predicting nonresidential building spending to grow through this coming year, despite a marked slowdown. The new consensus forecast from AIA projects nonresidential construction spending on buildings to grow by 1.5% throughout 2020, with less than a 1% increase in 2021. Even with weak construction spending in 2019, AIA says current estimates show the industry had a modest increase in activity.
Meanwhile, the Associated Builders and Contractors (ABC) says confidence among U.S. construction industry leaders increased toward the end of last year with respect to sales, profit margins and staffing. In the November 2019 Construction Confidence Index, ABC says sales and profit margin expectations reached their highest levels since May 2019, while staffing expectations reached their highest level since April 2019.
ABC reported that three quarters of contractors expect sales to rise in the next six months, with nearly 65% expecting to increase their staffing levels. This indicates that the average contractor will face even more challenges in recruiting and retaining talent in the first half of the year. Additionally, more than 50% of contractors expect their profit margins to increase over the next since months for the first time since August 2019, while fewer than 12% expect margins to decline, strongly suggesting that demand for construction services remains elevated and purchasers are willing to pay enough to offset rising compensation costs.
ABC chief economist Anirban Basu notes, “The U.S. economy retains significant momentum entering 2020. Accordingly, the nonresidential construction outlook remains stable. The duration of the economic expansion—already record-shattering—has more room to run. ABC’s Construction Backlog Indicator remained virtually unchanged at 8.8 months in November, and with job growth still apparent, demand for office and other forms of commercial construction will persist. Improved state and local government finances working in conjunction with ultra-low interest rates are helping to fuel additional spending in a variety of infrastructure-related categories, including water systems, flood control and public safety. Though there will always be reasons for concern, including those related to geopolitics, the achievement of a first phase trade deal with China and the new United States-Mexico-Canada trade agreement, which replaced NAFTA, should provide much-needed certainty regarding near-term economic prospects.”
In this year’s State of the Industry report, we turn to five industry professionals for their take on the current economic conditions and what to expect as we head into 2020. Sustainability has become standard as the sophistication of projects increases regularly, and the different types of technology aims to making building easier and more streamlined. Click here to see what our experts have to say about moving forward in an uncertain economy.
