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FMI First Quarter 2018 Construction Outlook

Economic
Key Takeaways
  • Total engineering and construction spending for the U.S. is forecast to end up 7 percent in 2018, compared to up 4 percent in 2017.
  • Spending growth in 2018 is forecast to be led by residential and select nonresidential segments. Current top-three-performing segments forecast in 2018 include residential improvements (+12 percent), single-family residential (+7 percent) and office (+9 percent). The bottom-three-performing segments include religious (-4 percent), sewage and waste disposal (-1 percent) and water supply (-3 percent).
  • Growth in several segments appears to be flattening out or stabilizing in 2018, including two prior high-growth segments from 2017, multifamily residential and lodging. Other stabilizing segments include manufacturing, power and highway and street, all three of which were down through 2017.

Total Construction Put in Place
Estimated for the U.S.

 

Residential Construction Put in Place

Single-Family Residential
  • Low unemployment rates, wage improvements, inventories, tax restructure and increasing interest rates are all driving demand
  • Buyers expected to depart multifamily living for the benefits of single-family homes

Drivers: unemployment rate, core CPI, income, mortgage rate, home prices, housing starts, housing permits

Multifamily Residential
  • Single-family home supply, location and pricing encourage buyers to consider multifamily options
  • Vacancy rates remain low, even with the considerable supply increases seen in 2016 and 2017

Drivers: unemployment rate, core CPI, income, mortgage rate, home prices, housing starts, housing permits

Improvements
  • Constrained (and rising) home sales are driving above-average improvements
  • Low unemployment, increasing wages and higher home prices further strengthen demand

Drivers: unemployment rate, core CPI, income, mortgage rate, home prices, housing starts, housing permits

 

Total Construction Spending Put in Place 2017 and Forecast Growth (2017-2022 CAGR) by Construction Segment

Total Construction Spending Put in Place 2017 and Forecast Growth (2017-2022 CAGR) by Metropolitan Statistical Area

Nonresidential Construction Index (NRCI)
Score Since Inception Q1 2010 to Q2 2018

(Scores above 50 indicate expansion; scores below 50 indicate contraction)

 

Nonresidential Construction Put in Place

Lodging
  • Supply outpacing demand, causing increasing vacancy rates
  • Investment growth continues to moderate into 2018 and 2019

Drivers: occupancy rate, RevPAR, average daily rate, room starts

Office
  • Reduced corporate tax rates increase investment through 2018
  • Increased remote workers and a slowdown in high-tech offices remain drawbacks

Drivers: office vacancy rate, unemployment rate

Commercial
  • The ongoing rise in e-commerce
  • Increased warehouse and distribution center spending
  • Increased profits due to tax reform

Drivers: retail sales, CPI, income, home prices, housing starts, housing permits

Health Care
  • Repeal of the Affordable Care Act increases number of uninsured, cutting into industry profitability
  • Shift away from new, large-scale hospitals with emphasis on expansion and outpatient projects

Drivers: population change younger than age 18, population change ages 18-24, stock market, government spending, nonresidential structure investment

Education
  • Short-term growth driven by public K-12 spending
  • K-12 enrollments increasing in more than half of the states
  • Increased use of flexible space to accommodate year-round schools

Drivers: population change younger than age 18, population change ages 18-24, stock market, government spending, nonresidential structure investment

Religious
  • Donations expected to decline due to new cap on state and local deductions
  • Ongoing improved/creative space utilization at nontraditional facilities

Drivers: GDP, population, income, personal savings

Public Safety
  • State and local governments face significant fiscal constraints
  • High-growth metropolitans need updated and/or new facilities
  • Overcrowding in correctional facilities

Drivers: population, government spending, incarceration rate, nonresidential structure investment

Amusement and Recreation
  • Several big-budget and high-pro le projects are underway (e.g., sports stadiums)
  • Casino construction is increasing alongside efforts to boost state and local tax revenues

Drivers: income, personal savings rate, unemployment rate, employment

Transportation
  • Significant airport investment is underway and in planning
  • Repair work underway at hurricane-damaged ports

Drivers: population, government spending, transportation funding

Communication
  • Demand for bandwidth (alongside technology innovation) is increasing
  • Connectivity is becoming a requirement for economic activity and growth (e.g., HQ relocations, data and distribution centers, etc.)

Drivers: population, security/regulation standards, private investment, innovation/technology investment

Manufacturing
  • Tax overhaul and new tariffs create several considerations for manufacturers; pros and cons vary by industry
  • Manufacturing capacity utilization rates remain low

Drivers: PMI, industrial production, capacity utilization, durable goods orders, manufacturing inventories

 

Nonbuilding Structures Construction Put in Place

Power
  • Spending continues in electric and gas transmission and distribution infrastructure
  • Natural gas-fired power plants are the primary source of new utility-scale capacity
  • New tariffs potentially handicap solar investments

Drivers: population, industrial production, government spending

Highway and Street
  • Federal funding is expected to remain flat
  • States are successfully passing increased gas taxes and user fees
  • Rising interest rates could stall public-private-partnership opportunities

Drivers: population, government spending, nonresidential structure investment

Sewage and Waste Disposal
  • Limited resources to plan, build, maintain or improve infrastructure
  • Investments will be directed towards compliance-related needs
  • Residential construction will drive and support demand/needs

Drivers: population, industrial production, government spending

Water Supply
  • Similar to sewage and waste disposal, funding and resources are severely limited
  • Technology advancements help meet high-capacity industrial and residential needs

Drivers: population, industrial production, government spending

Conservation and Development
  • Federal budgets continue to drag on conservation and development spending
  • Hurricane cleanup in Texas and Florida is expected to boost investment levels through 2019

Drivers: population, government spending


 

For more information, visit fminet.com.

 

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