Past Regional Reports
The latest estimate from the US Bureau of Economic Analysis puts economic growth for Q2 2021 at 6.7% on a quarterly basis, compared to 6.3% in Q1 and 4.5% in Q4 2020. This follows the 3.5% decline in 2020, and is attributed to the progress being made in the vaccination program, as well as the extensive economic stimuli and the re-opening of businesses and the economy at large.
As of September, unemployment had fallen by 0.4% to hit 4.8%. Notable gains were reported in hospitality, professional services, retail, and transport and warehousing.
In the January-July 2021 period, data from the US Census Bureau showed that the nominal (current prices) value of construction put in place was up by 6.1%, compared to the 1.2% growth in constant prices value for construction gross output in H1 reported by the US Bureau for Economic Analysis.
Residential has seen double-digit growth rates since Q3 2020 and has been a key contributor towards the rebound of the economy and overall construction industry. Low mortgage rates, strong demand for bigger living spaces and low housing inventory have all contributed towards its success.
Although infrastructure was subdued in the first half of the year, posting a 5.9% decline in transportation works in the January to July period and 5.1% decline in power, the approval of the infrastructure spending bill, which covers related long-term investments, has led to an uptick. While the new bill falls short of President Joe Biden’s original US$2.3 trillion proposal, it includes US$550 billion in new federal spending to invest in various US infrastructure sectors over the next five years.
Lastly, the commercial sector had a challenging 2020, with a 6.2% contraction and investments remained weak in H1 2021, with the total value of office buildings put in place down 30.1%.
The OECD revised its forecast for full-year growth for 2021 downward in September 2021, the from 6.9% to 6%, while the Federal Open Market Committee (FOMC) has also gone from a 7% forecast to 5.9%. It also expects the economy to expand by 3.8% in 2022, 2.5% in 2023 and 2% in 2024. Meanwhile, the IMF’s prediction for 2021 is a 7% expansion, followed by 4.9% in 2022. The total value of building permits for housing units increased by 31% year-on-year in the first eight months of 2021, and the number of housing starts in H1 2021 grew by 26.2% year-on-year to 791,000, of which 564,000 units are for single-family houses.
In terms of construction, the industry is set to grow by 1.8% this year, picking up pace in 2022 to record 3.7%. Commercial will shrink further at a rate of 10.5% in 2021, while the abovementioned infrastructure spending bill will prop the sector, although output in 2021 will still fall by 4.6%. However, the bill is likely to boost spending and performance in the more medium term.
Residential is expected to continue its robust performance in 2021, with 13.6% forecast, although this will moderate from 2022 to 2025, with average annual growth of 1.7% anticipated.
Contributors: John Fitzgerald, Alan Harmon, Darren Newell, Frank O'Sullivan, Lisa McIntyre and Morag Murray
The Midwest is rebounding from 2020, but at a slower pace than other regions in the U.S.. It is heavily reliant on manufacturing and infrastructure, but with the constraints that have been in place since the start of the pandemic, labor shortages, high material prices and infrastructure investment being limited, to date it has been a slower-than-anticipated recovery. However, the past quarter, in particular, is showing promising signs for an uptick throughout the remainder of 2021 and into 2022.
The Midwest is a hub for the industrial sector, and we are now seeing movement in the sector in Q3 into Q4. This is a direct impact of COVID-19 on everyday life, and the knock-on effect in terms of demand for additional storage and fulfillment centers. Mission critical is also a sector that has remained buoyant in the Midwest, due to the need for additional data storage
Despite the desperate need for housing, residential completions are not yet meeting the pace of demand. This is due to the increase in prices for raw materials, such as steel, copper and lumber.
There are many obstacles to hurdle for a full recovery. The Delta variant, shortages of labor and inflation of construction materials are all current issues, which are affecting projects starting, and then their schedules and costs. Once these issues settle, the Midwest expects the performing sectors to continue in line with current trends, and importantly, the sectors most affected, which were hospitality, residential and commercial, to rebound slowly as 2022 progresses.
In 2020, the Northeast region felt the effects of COVID-19. Regional GDP was down 2.1% in 2020 over 2019 figures. The Q1 and Q2 results show a swift rebound as the region recovers from the impacts of the pandemic, +1.8% in 2021 vs. 2019 figures and a sharper contrast of +24.2% vs. 2020 figures. We await the results for the remaining quartiles of 2021 to measure the overall impact of the Delta variant on recovery.
The construction industry rebounded faster than other industries, creating uncertainty and increased volatility around project costing and labor availability. This was further exacerbated by shortages in key raw materials and an increase in manufacturing costs (as COVID safety measures were implemented). The industry continued to strengthen through Q1 and Q2 and is a larger contributor to the regional economy in comparison to pre-COVID-19 figures. In general, unemployment numbers increased (0.6%) while growth in the construction industry grew across all sectors, with the exception of hotels, manufacturing, education and healthcare.
The Delta variant continues to be a concern with winter approaching. However, there is more confidence around vaccinations being effective in combating the worst of COVID-19 symptoms. Higher unemployment rates will continue to be a challenge for the industry, as uncertainty and concern remain around the pandemic. Should mortality and hospitalizations continue to reduce and the pandemic recedes, it is expected that volatility will ease in the marketplace.
The Florida region saw a slow start to 2021 due to ongoing COVID restrictions.
Non-building and Commerical sector seen a decrease in volume in 2021 however this decline was offset by a strong demand for residential properties which is expected to continue into 2022. However, residential construction surged in June of 2021, more than tripling the amount recorded at the same time last year, according to the Dodge report. The upward trend in performance is set to continue into 2022 as more and more people relocate to the state.
The Florida market is set to become a key location for major companies in the coming years. The mass exodus of highly skilled people from higher tax bracket cities has resulted in an increase demand for residential properties across the state. Looking ahead, Florida is expected to challenge New York in terms of high-density apartment living, which is only set to increase further when the tourism industry fully opens to non-US visitors in the coming months.
The first half of 2021 in California has indicated that there is a strong desire for pre-pandemic life to resume, particularly with the resurgence of traveling. However, it is noted that business interruptions with restrictions are proving difficult for business owners. Recovery can be seen in all industries, with tech constituting the strongest area of growth, and logistics and distribution fully recovered.
Commercial and manufacturing construction are seeing an increase over the last quarter. Residential is thought be returning to an upward trend, and overall construction is predicted to see a significant uptick in Q4 2021.
Recovery is ongoing in all sectors. It is anticipated that California will rebound faster than most other states, catching up by 2023. It is difficult to predict how the commercial sector will bounce back, though there is an increase in return-to-office, reigniting projects in the industry again, with newer developments being approved.