Most of 2013 was characterized by moderate improvements in the construction industry’s economic outlook. According to Associated Builders and Contractors’ (ABC) economic forecast for 2014, the U.S. commercial and industrial construction industry can expect ongoing recovery in nonresidential construction spending next year. However, the recovery remains constrained by a lack of conviction regarding overall macroeconomic and budgetary prospects.
According to Anirban Basu, ABC’s chief economist, the 2014 forecast for nonresidential construction spending expects an expansion in the high single digits. In particular, Basu is predicting growth in the following segments:
• Five-percent growth in commercial construction
• Nearly 7-percent growth in health care
• Eight-percent growth in lodging
• Five- to 6-percent growth in communications
• Three- to 4-percent growth in manufacturing
Basu expects publicly financed segments to continue to be hamstrung by reluctant state and local government budget officials. He predicts a decline in public nonresidential office and commercial spending, specifically. However, Basu also foresees expansion in certain private categories. Basu predicts health care utilization will be on the rise, power will continue to be a consistently strong segment, commercial will grow as the result of protracted periods of consumer spending growth, and lodging will grow as hotel occupancy continues to rise.
“Even slow growth ultimately unlocks construction opportunities,” Basu said. “Ongoing recovery steadily produces lower vacancy rates, rising rents and more comfortable lenders. Growth eventually produces higher interest rates, and may begin to serve as a more meaningful speed governor in late 2014 or in 2015.”
Geographically, Basu says the states likely to experience rapid construction job growth will include energy producers such as Texas, North Dakota and Louisiana. In addition, Basu noted a number of communities hit hard by the downturn, including California, Arizona, Georgia and Florida, have been adding construction positions rapidly, with the housing market stabilizing and household formation accelerating.
For overall construction employment, Basu predicts a 1.9-percent increase in jobs in 2014 for nonresidential construction, along with a 2.3-percent increase in jobs for residential construction.
In a broader outlook, Basu expects the global economy expansion to accelerate to 3.6 percent in 2014, compared to a 2.9-percent expansion in 2013 and he predicts materials’ prices are likely to rise 4.4 percent during the next year.
“All things being equal, this will raise the level of demand for construction inputs, which in turn will accelerate materials’ price increases, though not to the extent experienced in 2004, 2005 and 2007.”
For the U.S. economy, Basu sees continued growth of around 2 percent next year — between 1.8 percent and 2.6 percent.
“That should help reignite the nation’s housing market, which in turn will help restore consumer confidence and allow America to possibly approach 3-percent growth by the final two quarters of 2014,” Basu said. “Uncertainty stems from the ongoing implementation of health care reform, including the enforcement of the employer mandate. Budget squabbles and news emerging from abroad also will serve to constrain growth. However, if Congress can create substantially greater transparency regarding America’s federal budgetary future early next year, then 2015 could end up being a breakout year for the United States and ultimately for nonresidential construction.”
ABC’s own economic indicator, the Construction Backlog Indicator (CBI), is also expected to register growth next year. The quarterly CBI is a forward-looking national economic indicator that reflects the amount of work that will be performed by commercial and industrial contractors in the months ahead. In 2012, backlog stood at 7.8 months. For 2013, backlog is expected to rise to 8.6 months and for 2014, Basu expects an 8.1-percent increase to 9.3 months.
Dan Brodbeck is the founder, president and CEO of Compass Partners LLC, Brentwood, Tenn.
For more information on ABC, visit www.abc.org or call (703) 812-2000.
