Construction Outlook ’17: ‘Still Has Legs’ but Uncertainty Creeps In

Construction Outlook ’17: ‘Still Has Legs’ but Uncertainty Creeps In

The U.S. construction industry’s current expansion “still has legs” and is looking at 3% overall growth in 2017 — and 5% if you take out the more volatile sectors, says Dodge Data & Analytics chief economist Robert Murray.

But a “slight tempering” has crept into the construction data firm’s research, which is another way of saying uncertainty coming out of Washington, D.C. has found its way into its forecasts for the rest of the year. For example, public works spending is hovering around 2% growth expectations, not quite the bump the data folks were expecting to see added to the pipeline.

During a mid-year outlook conference call for 2017 today, Murray noted that the total construction market in the U.S. would hit about $7.3 trillion worth of activity in 2017, up 3% overall from 2016.

Electric utilities & gas plant building is down 30% year-over-year due to a flurry of new Liquified Natural Gas (LNG) plant construction in the past few years and an oversupply of natural gas that is driving down prices. After *two straight years of declines, manufacturing is expected to grow by 2% in 2017, but “exclude those two volatile project types and it’s still a robust overall picture,” Murray says.

Dodge Data & Analytics slide shows overall growth in construction for 2017.

The Healthcare facilities sector is also showing uncertainty over the failure by Congress so far to enact legislation on the repeal and replace plans for Obamacare, which impacts facilities planning, as well as what’s going on with Medicaid reimbursement that drives some facility building decisions.

Murray sees the recovery from the Great Recession of 2008 and expansion “proceeding, but rates of growth are decelerating.”

Other takeaways:

  • Other public works sub-sectors — pipelines, airport runways and major rail projects are driving strong increases.
  • A surge in pipeline related construction — even before the Trump Administration eased approvals with recent executive orders, is also driving growth in the Public Works sector to a 2% growth target in 2017. The executive orders to approve pipeline construction is having a positive effect on the growth numbers.
  • So while Liquified Natural Gas (LNG) terminal construction is way down after a flurry of new plant construction, the natural gas boom is still on with pipeline construction.
  • Airport terminal projects are also standout categories, providing an overall lift to construction activity in 2017.
  • Housing is always the bellwether sector for the overall building market and the single-family housing sector is among the strongest construction sector at 12% growth expected over 2016.
  • Millennials in their 30’s (the ones not too burdened by student debt or still living in their parent’s basements with low-paying jobs), are seen as warming to the idea of their first home in the suburbs, perhaps ready to let go of that cool apartment rental in a downtown hipster neighborhood.

Looking ahead to 2018, Murray sees another year of growth but is still “tempering” a bit because of the uncertainty factor of what Congress can accomplish. “If tax reform passes we could see something on the order of 4% – 5% growth, and maybe more of a response from the educational sector, especially colleges and universities with endowments tied to the performance of the stock market.”

If Congress passes a tax package, he and his team expect to update the working estimate of 2.3% GDP growth.

The latest news is that the Treasury Department is looking at a corporate tax rate cut from 35% to now the 20% range (instead of the 15% initially called for). Axios.com is reporting that anything below 25% will be difficult, according to its GOP sources. One of the more contentious elements of any tax reform or package will be how elimination of many deductions will hit state and local taxes.

Overall Murray adds, “businesses are doing well but remain cautious with investments.” Job growth is still relatively healthy at 180,000 a month in 2017.

By 2019, expect a slower economy and higher interest rates but for 2018 we should see the recovery of the construction industry since the Great Recession continue.

But pegging growth rates for 2018 depends on what Congress can get done on tax reform or cuts before the end of the year. On that forecast, he’s giving us the accountant’s answer: It depends.

 

*Updated to correct that manufacturing construction sector was down two prior years before positive growth rate of 2% in 2017.