State of the Construction Industry 2019
An extended federal government shutdown and instability in the global markets started 2019 off with a shaky foundation. Yet, the U.S. construction industry is still projected to see favorable investment and activity in the months ahead.
For a better perspective on what to expect, Rental magazine asked economists from some of the leading construction industry organizations to share their insights and outlooks on what we may expect from 2019 and beyond in Highway & Bridge Construction, Building Construction, Employment, and Raw Material Costs.
To wrap it up, these organizations also gave their prospective ideas about what the future looks like for the construction industry overall.
Overall Economic Outlook for 2019:
RM. Is it fair to say that GDP growth in 2018 exceeded expectations? If so, what were the drivers and do you see similar growth for 2019 and beyond?
Anirban Basu, Chief Economist for the Associated Builders and Contractors (ABC). GDP growth in 2018 roughly equaled expectations. Many economists predicted 3 percent growth this year and that appears to be what the economy delivered. Next year will usher forth a period of slower economic growth, with corporate investment softening.
Ken Simonson, Chief Economist, Associated General Contractors of America (AGC). Expansion will continue in 2019 but the stimulus provided by the 2017 Tax Cut and Jobs Act will fade and tariffs may be more of a drag than in 2018. I have no prediction beyond 2019, but so far see no reason to expect a recession.
Robert Dietz, SVP & Chief Economist, National Association of Home Builders (NAHB). 2018 GDP growth came in just under 3 percent, where NAHB had forecasted it given the lift provided by tax reform and tax cuts. For 2019, we are calling for a slower growth rate of 2.5 percent and closer to 1 percent for 2020 as higher interest rates slow more than just the housing market. Our modeling shows that the Fed will likely only raise rates twice in 2019, resulting in a pause to evaluate market data.
On the promising side, the housing market will benefit from favorable demographic tailwinds, including the Millennials increasingly moving from rentership to homeownership. In fact, due to this aging, the U.S. has seen nine straight quarters of fairly robust growth of demand on the ownership side of the housing market. Moreover, a near 50-year low for the unemployment rate supports demand for both rental and for-sale housing.
However, a near 100 basis point increase in mortgage rates has had stronger than expected impacts on housing demand this year this summer and fall. This was clearly reflected in the November edition of the NAHB/Wells Fargo Housing Market index, which dropped 8 points to a level of 60 in November – still positive, but it was the lowest reading in two years and the largest drop in four years. Unless income growth accelerates markedly, housing affordability can be expected to decline further in 2019, which will produce a real estate related drag on the economy.
IHS Markit. Our current outlook is for overall 2018 GDP growth to reach 3.1 percent—the best since 2004. Stimulus from the 2017 tax act and 2018 budget acts, still-accommodative monetary policy, healthy consumer balance sheets, firm gains in employment and income, and high levels of both consumer and business confidence will propel the economy through 2019 at a slower, but still above-trend 2.4 percent pace. This will nudge the unemployment rate to a cyclical low of 3.4 percent while “core” inflation edges above 2 percent.
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