Regional Analysis 2021

Americas 2021

U.S. economic and construction review 

Economic performance

The year 2020 was challenging for the US economy, as it was for much of the world, and real GDP fell by 3.5 percent, compared to the 2.2 percent growth recorded in 2019. This was still softer than the estimations, with the decreases in personal consumption expenditure (PCE), exports, private inventory investment, nonresidential fixed investment, and state and local government, somewhat offset by increases in federal government spending and residential fixed investment, according to the Bureau of Economic Analysis.  

Unemployment reached a record-high of 14.8 percent in April 2020, closing out the year at 6.7 percent and falling again to 6.2 percent as of February 2021.  

Construction market performance

While 2020 was been a turbulent year for all industries, construction was somewhat fortunate, in that projects were allowed to remain open in most cases during the most extreme lockdowns. The nature of the industry and its ability to adopt flexible working conditions has ensured projects have remained open for the most part.  

Overall construction starts in 2020 fell by 18.3 percent, with non-residential construction starts down 24 percent. However, residential construction performed comparably well – after a brief decline in the early stages of the pandemic, it has picked up again since May 2020 to record just a 1 percent decline for the year.  

It was undoubtedly a challenging year, with whole-year value of construction starts in 2020 at its lowest level in five years.  

Looking ahead 

As vaccination programs are rolled out globally, comprehensive fiscal supports are put in place and economies begin to somewhat adapt to the ‘new normal’, growth is forecast globally. With a resurgence of infections and a slow start to the year, GDP growth is expected to be sluggish in Q1 before picking up. Fitch Ratings recently upped its forecast for US growth from 4.5% to 5.2% for 2021, with the larger-than-expected fiscal stimulus package in the US being particularly influential.  

Increased stability for construction and modest growth of 8.8% are expected following 2020’s volatility, although performances across sectors and regions are set to be mixed. Following the fall in non-residential starts last year, as mentioned above, the impact of this will be felt this year, even if new projects rebound. Overall, volume in this vertical is anticipated to decline again in 2021, with spending expected to fall by between 5-8 percent. However, it is expected that starts will pick up this year, which would lead to growth again for the industry in 2022. 

We expect construction cost escalation to continue throughout this year, as shortages in both labor and materials will present some challenges for the industry. 

Contributors: John Fitzgerald, Alan Harmon, Darren Newell, Frank O'Sullivan, Lisa McIntyre and Morag Murray 

 

U.S. - regional market snapshots

Midwest regional activity 

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Economic performance

With the economic downturn, inflation has stayed consistent with 2019 for the Midwest region, while GDP has dropped by 4 percent. The Midwest contitutes the smallest GDP figure for the US. Unemployment went from a rate of 3.5 percent in January 2020, peaking in April 2020 at 15.4 percent, to 5.1 percent for the region as of January 2021.  

Construction market performance 

Like all industries, construction was impacted by the pandemic in 2020. In Q1 and Q2, projects were cancelled, paused or delayed when COVID-19 cases were high and restrictions were in place. However, critical projects continued, and this helped the data center and life science sectors – both of which are vital to the Midwest construction economy. Industry unemployment stayed slightly below the overall unemployment rate in the region as construction was hit less severely than other industries. In Q2, the rate peaked at 8 percent and has since reduced to 5 percent. Until the commercial sector returns to a semblance of normality, employment is expected to remain close around 5 percent in early 2021. 

Looking ahead 

Information from various banks and economists diverge about the predictions for Midwest America in the short term. The most positive projections expect the Midwest to reduce unemployment to 4 percent and increase in GDP by 1.5 percent. What is clear is that until COVID-19 is controlled, there is going to be a stunt on economic growth, jobs and GDP.  

 

Northeast regional activity

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Economic performance 

Real GDP increased in all states in the Northeast region by approximately 36 percent in Q3 2020 on an annual basis, ranging from 30.3 percent in New York to 40.9 percent in New Hampshire. Oxford Economics reports a 4.1 percent fall in GDP for the region for the full year. Inflation had increased by 1.4 percent in December 2020 year-on-year and most recently, has increased by 0.4 percent in both January and February 2021. Employment has fallen by approximately 12 percent in the year to December 2020, with the unemployment rate at 7.8 percent as of January 2021. 

Construction market performance

The Northeast continues to be hard hit due to the COVID-19 pandemic, and saw the steepest decline in new construction for the year at 27.5 percent. The first wave of the pandemic hit the region particularly hard, with some construction sites closed, which inevitably took its toll. While overall unemployment stood at 7.8 percent as of January, as referenced above, the rate in construction hit 9.4 percent for the same period.  

In terms of project starts in 2020, non-residential fell 29.7 percent in the region over the year 2020, while residential starts fell by 2.5 percent year-on-year in February 2021 and 22 percent for the year overall.  

Looking ahead

With the roll-out of vaccines commencing late 2020 and early 2021, there was optimism that this would assist in economic improvement towards the end of this year. However, a resurgence in the virus, as well as the emergence of new strains have dampened this optimism. Overall, global GDP is expected to achieve 5.5 percent growth in the year, with the US forecast at 5.1 percent according to IMF. 

Construction forecasts look challenging for 2021, with most sectors expecting a drop in output. Residential appears to be maintaining a small increase in Massachusetts (+2.9 percent) and Pennsylvania (+0.8 percent). However, it is projected to mostly decline in other states, with New York forecasting a decline of 4.3 percent. Non-residential construction output is forecast to decline overall by approximately 8 percent across the region, with the hardest hit sectors being commercial and manufacturing, as well as infrastructure. 

 

Pacific Northwest regional activity

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Economic performance 

The Pacific Northwest region saw an average increase of 34 percent in Q3 2020, ranging from Wyoming at 19.4 percent to Nevada at 52.2 percent. Washington State saw a minor increase to GDP for the year, up 1.9 percent on 2019. Economists had been forecasting a significant drop in Oregon’s GDP due to the impact of COVID, but were shocked by an early forecast that was $2 billion higher than expected. 

Unemployment saw a 3.7 percent increase year-on-year in January 2021, hitting 7.6 percent for the region as of that month.  

Construction market performance

Construction starts declined in-region, falling by 13.9 percent, although there were there were big swings across the four main locations in the PNW. Residential construction did not record a major change, with a 0.6 percent decrease in starts overall, although British Columbia has had a significant increase in housing constructing in the last few months of 2020 with an annual increase of 25 percent. Seattle also saw growth in the housing sector, but at a comparatively low rate at 4.8 percent. Non-residential posted a 22.4 percent fall in starts – the biggest drops look to be in education and manufacturing, with Seattle and Portland recording double digit drops in both. Healthcare across all locations increased by around 2 percent. 

Looking ahead 

The outlook for 2021 is positive, with Washington expected to record a 4 percent increase in GDP for 2021 and British Columbia forecasting a 5 percent increase in GDP for the same period, while the IMF forecasts 5.1 percent for the US as a whole. Residential looks positive in Washington state and throughout British Columbia. 

 

San Francisco Bay Area/ California regional activity

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Economic performance

In 2020, California saw a real GDP increase of circa 2.2 percent over 2019, contributing the highest amount of any state to the country's GDP for the year. GDP growth during Q4 2020 weighed in at 4 percent, slower than the previous quarter, which is likely due to the increase of COVID-19 infection rates in the Fall and tighter restrictions causing a lack of fiscal stimulus. 

Unemployment peaked at 16 percent in April 2020, and has gone from 4.2 in January 2020 to 9 in January 2021.  

Construction market performance 

2020 saw a decline in most sectors in the Bay area, with only minor upticks seen in manufacturing and infrastructure. Infrastructure and Residential sectors have recommenced throughout California with the manufacturing sector completely recovered from 2020. 

In terms of industry employment, despite the decline in overall figures in December 2020, as referenced above, construction recorded an increase, which was in fact the state’s largest monthly increase at +31,600.  

Looking ahead 

In the next few months, it is expected that construction employment in California will have completely recovered from the sharp decline in Spring 2020. The confidence in the residential sector is solid; both housing starts and new home sales have rebounded sharply to their highest levels since 2006. The manufacturing economy continues to grow. Output has increased in seven of the last eight months. Real GDP growth is forecasted to be 4% in 2021. 

 

South Atlantic regional activity

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Economic performance 

The South Atlantic region saw just over a 36 percent growth in real GDP in Q3 2020. Unemployment averaged 7 percent across the region for the year 2020, hit 5.5 percent in January 2021, having stood at 3.4 percent in January 2020. It peaked at 12.7 percent in April 2020.  

Construction market performance 

The South Atlantic region performed well this year with unemployment dropping slightly by 0.01 percent. The drop in the commercial sector has been offset with a boom in the residential market, which has seen output increase by an average of 6.8 percent across all the South Atlantic states. The increased growth in the residential sector is due to remote working and families opting to relocate from major city hubs. At the outset of the pandemic, it was anticipated tender prices would drop with demand for non-residential properties reducing. However, social distancing work practices and soaring construction commodity prices soaring have led to a 2.1 percent increase in construction tender prices, according to ENRs December 2020 report. Construction tender prices are expected to continue into 2021. 

Looking ahead 

There is cautious optimism, with the federal reserve committee projecting GDP to grow 4 percent this year, which is fueled by new residential construction, healthcare and public infrastructure projects. 

Overall, the blow dealt to construction at the hands of the pandemic was softer than that on many other industries and a healthy recovery is forecast for 2021, with output across all sectors expected to grow by 8 percent.   

U.S. - value of construction output

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U.S. - employment in construction

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U.S. - construction cost index

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Linesight average U.S. construction costs

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