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January 3, 2017

Outlook for 2017: Moderate Growth & Construction Worker Shortages persist

“The construction industry continues to plod along undeterred at a growth rate of 6 percent,” said Randy Giggard, manager of marketing information at FMI Corp., in a prepared statement. “The prudent among us will keep watch for signs of the next recession. But at this time, it seems most likely that the industry will continue to expand for at least another 18 months.” So, no recession for 2017. No sudden changes. No forecasters getting fired. Please take a few minutes to read the attached article “Outlook 2017 Moderate Growth” for more information. 

Here are the forecasts from a few leading construction organizations: FMI. The construction consulting firm’s forecast for 2017 shows total put in place non-residential construction growing 4.4 percent to $488.5 billion, and total put in place residential construction growing 3.6 percent to $480.7 billion. (See the “Construction Put in Place” chart on page 35.) AGC. According to AGC’s “Construction Spending, Labor & Materials Outlook,” construction spending will grow 2 to 7 percent in 2017. Dodge. Dodge Data & Analytics’ “2017 Dodge Construction Outlook” sees total new construction starts in 2017 increasing 5 percent to $713 billion. Dodge predicts moderate growth for single-family housing, commercial and institutional building and public works. AIA. The American Institute of Architects’ semi-annual Consensus Construction Forecast projects overall spending in non-residential construction increasing 6.7 percent in 2017.

But, some parts of the country may see more vigorous growth next year. “[The New York City area] outlook for 2017 is robust with World Trade Center and Hudson Yards sites in full swing,” says Lee R. Zaretzky, president of Ronsco, Inc. New York, N.Y. “One Vanderbilt just broke ground, and the [Jacob J.] Javits Convention Center [expansion] and The New Penn Station are underway.” Sector Forecasts Here are some forecasts by construction segment. (See the “Construction by Segment” chart on page 35.)

Educational: “Bond issues should boost funding in some districts,” Simonson says. But, he notes that enrollment nationally in pre-kindergarten through high school is flat. Also, he believes colleges and universities will need fewer classrooms and dormitories as their enrollments trend downward and as more students opt for apartment rentals in lieu of dormitory rooms. FMI forecasts the education segment to grow 4.7 percent from $86.4 to $90.5 billion in 2017. AIA sees 6.6 percent growth in education facilities next year. Commercial. “Disruption in traditional commercial construction is occurring not only for online shopping but also in the form of boutique startups,” FMI says. E-commerce is prompting the need for more distribution centers, AGC says. FMI forecasts the commercial segment, which includes, retailing, warehousing and data centers, to grow 4.0 percent from $70.8 to $73.6 billion in 2017. AIA forecasts 7.5 percent growth in 2017. Offi ce. AGC sees offi ce space growing mainly in cities rather than in suburban offi ce parks.

Office: Office Construction Simonson says, shows 2017 growth in the 5 to 10 percent range, but it’s trending toward a saturation point. “Employment sets records each month,” Simonson says, “but office space per employee keeps shrinking.” FMI forecasts the offi ce segment to rise 4.8 percent from $63.9 to $67.0 billion in 2017. AIA forecasts 8.8 percent growth in office space next year. Health care. Health care construction will grow in 2017 by building smaller facilities.

Hospitals: Hospitals face more competition, Simonson says, from stand-alone urgent care facilities and outpatient clinics. AGC sees 2017 growth of 3 to 8 percent for health care. FMI sees health care growing by 5.0 percent in 2017—from $41.0 to $43.1 billion. AIA predicts a 2017 increase of 6.9 percent in health care construction. Lodging. STR’s September 2016 Pipeline Report shows 549,142 rooms in 4,510 projects under contract in the United States—a 24.4 percent increase from 12 months prior. But, this level of lodging construction is likely to drop in 2017 as revenue per available room begins to slow. FMI projects lodging to grow 5.3 percent from $25.6 to $27.0 billion in 2017. More optimistically, AIA forecasts 7.8 percent growth in hotels next year.

Residential: The National Association of Home Builders/Wells Fargo Housing Market Index is trending upward, though September’s figure was down. HMI, based on a monthly survey of NAHB members on single-family housing, rates market conditions for the sale of new homes and the traffic of prospective buyers of new homes. (See the “Housing” chart on page 35.) AGC forecasts single-family residential construction to grow 6 to 11 percent and multifamily residential construction to grow 5 to 10 percent in 2017. FMI projects total residential construction, both single-family and multifamily, to grow 3.6 percent from $463.9 to $480.7 billion in 2017.

Employment Surpasses 2008 Construction employment in September, AGC says, reached 6,669,000—the highest level since December 2008. And, construction unemployment has dropped to 5.2 percent. (See the “Construction Unemployment” chart on page 37.) That’s good news, but it comes with a cost. Construction industry employ ment through September increased twice as fast at 3.4 percent for the prior 12 months as the 1.7 percent increase for total U.S. non-farm payroll employment. As the available supply of workers continues to shrink, average hourly earnings, a measure of wages and salaries for all workers, increased 2.8 percent in construction over the past year to $28.30 in September. (See the “Construction Employee Compensation” chart and the “Costs Per Hour Worked” table on page 37.) And, of course, the shortage of skilled workers has grown worse. (See the “Construction Worker Shortages” chart on page 38.) “Demand for construction remains quite strong,” Simonson says, “but contractors continue to struggle to find qualified workers.”

Most states and cities saw construction jobs growth in 2016. Construction employment in 36 states was up year-to-year through August. One state, Nebraska, had no change in construction employment during that period. The District of Columbia and 13 states—Alabama, Alaska, Arkansas, Connecticut, Illinois, Kansas, Kentucky, Maine, Montana, New Mexico, North Dakota, West Virginia, Wyoming—saw decreases in construction employment during the 12 months through August. Similarly, construction employment was up in 220 of 358 metropolitan areas year-to-year through August. Construction employment was the same in 62 metro areas and down in 76 metro areas during the period. (See the “Metro Area Job Gains and Losses” table on page 38.) Recession Unlikely in 2017 The International Monetary Fund recently trimmed its growth forecast for the world’s major economies for 2017, Fortune reports. The updated IMF forecast was a signal, Fortune notes, that “all countries could be at risk of slipping into a recession.” However, U.S. construction executives seem undaunted in the face of such dire concerns.

FMI asked its Nonresidential Construction Index panelists for their opinion about when they think the next recession in construction will begin. Overall, 78 percent said they don’t expect a recession to occur until the fi rst half of 2018. While panelists see less money going around next year, for many it’s a sense of relief. FMI says a few contractors participating in its NRCI survey said slower growth wouldn’t be so bad. Many construction companies have been working either at capacity or above it for some time, FMI says. So, the cards look good for 2017. And one card, the recession card, is unlikely to be dealt. It’s been a long road coming out of the Great Recession. Is the construction economy fi nally on fi rm ground? “I wouldn’t say it’s resting on fi rm ground. I’d say its shifting ground,” Simonson says. “But, it does look like there’s a lot of work ahead.”

Outlook 2017 Moderate Growth