U.S. Construction Growth
In October 2012, McGraw-Hill Construction’s Dodge Outlook report predicted U.S. Construction would see an uptick of 6%, bringing construction to $483 billion in 2013. The August 2013 update shows that for overall growth, the McGraw-Hill prediction was spot on. Here’s a breakdown of how sectors within construction performed this year compared to projections.
Single Family Housing
McGraw-Hill predicted an increase of 21% more units and a 24% increase in revenue. Building is on-track to outpace those predictions, with 28% growth. The increase is due in part to the lack of new homes for sale. The 2008 recession slowed new home construction, and the market is slow to catch up. One concern is rising mortgage rates. They are going up, but they’re still at historic lows. It hasn’t had a huge impact yet, but it’s a factor to watch in 2014.
Multi-family housing was expected to grow by 14% more units in 2013, with a revenue increase of 16%. At mid-year, growth stood at 20% for units and 23% for revenue. Demand for rental housing increased during the recession as home foreclosures rose. While those rates have dropped in recent years, they still spur growth in this market. Multi-family housing is attractive to investors, especially in large cities, suggesting the upward trend will continue.
Growth of 12% was predicted for commercial building, and we’re on track at 15%. The increase is largely due to new retail stores, warehouses, and hotels. As the economy recovers, families are spending more and taking vacations again. New office construction still lags, as financing remains difficult to secure.
McGraw-Hill predicted a decline of 13% in 2013. But construction only dropped 5%, stemming broader fears. Much of the decline is blamed on reduced government spending for educational facilities. Healthcare facilities are not building, either, due to uncertainty over the Affordable Care Act. One bright spot is the stabilization of university construction projects, which should offset decreases in other areas.
Predictions missed the mark here, with 8% growth anticipated. Instead, construction dropped 8% due to several factors: the export market is soft, the dollar is weak, and companies won’t invest in new construction because of uncertainty in the markets and new healthcare regulations. They’re holding their cash instead of investing in building.
Public Works Building
Public works building was predicted to decline by 1%. Instead, it’s grown by a modest 3%, thanks to new bridge construction. This sector was not impacted by the sequester and other government spending cuts, as expected. Also, the federal transportation bill stabilized this industry and kept it from further decline.
Electric Utilities Building
Here, the mid-year decline of 40% is actually worse than the 31% drop predicted by McGraw-Hill. The decline isn’t as bad as it seems, as two new nuclear plants were built in 2012. But more efficient facilities have reduced the demand for energy, and no new projects were planned for 2013. It’s possible that electric utilities construction may see a downward trend into 2014.
Where Construction Stands, and Where It’s Headed
In the next year, Virginia, North Carolina, and Indiana in particular should see heavy growth in construction. The news isn’t all good. Missouri, Kansas, Wisconsin, and Washington will all see fewer projects.
AGC Economist Ken Simonson noted that 37 U.S. states saw an increase in construction employment in the past year, but “barely a third of the states added construction jobs between June and July.” It’s surprising, since summer is a peak season for projects. Presently, California and Wyoming are enjoying a boom and are two states with the highest 12-month increase in employment. South Dakota and Indiana are two states on the losing end of the equation.
The shortage of skilled workers continues to stunt growth. The recession and decrease in construction from 2008 onward pushed many workers out of the industry and into retirement or jobs in other fields. As construction improves, labor will be an issue to watch and may help stall the industry’s recovery.