Regional Analysis 2019 USA

USA Market Review 2019

The US construction industry has enjoyed expansion over the last three years, but we are now seeing a slowdown in this growth. Construction starts grew by 7% in both 2016 and 2017 and slowed to 3% in 2018.

$1306bn
Construction output to November 2018
7.2 million
Employment in construction
+3%
ENR construction cost index

USA Market Review

Damien Coffey, Director of Project Management in North America, looks at the US construction industry’s performance so far in 2018, as the sector continues to grow steadily. 

The US economy looks set to experience a year of slower growth in 2019. According to the Goldman Sachs Outlook, the economy will slow from 2.9% growth in 2018 to 2.5% growth in 2019, mainly due to tighter financial conditions, the benefits from the tax cuts beginning to fade and a diminishing fiscal stimulus to be the key drivers of the deceleration.

However, the unemployment rate is still declining due to continued job creation, and is predicted to be as low as 3% by early 2020. There is an expectation that the Federal Reserve will increase rates through 2019 to temper this downward trend and stabilize economic growth. 

Construction spending in 2019 is estimated to be $1.341 trillion, in line with the predicted moderate slowdown in growth.

While the inflation rate is currently around the 1.9% mark, it is predicted that it will reach 2.25% by the of 2019, according to Goldman Sachs Outlook. In 2019, the rate will have upward pressure from wage growth, bottlenecks and capacity constraints in product markets, further tariffs, and new online sales taxes at State level. 

While further escalation of trade tensions with China appears likely, it does not seem to have had much effect on the US economy so far. Any further escalation should only have a minimal effect on growth, unless US business confidence drops, and risk assets are more impacted by the trade tariffs than they have been to date.

Factors affecting the construction outlook 

The US construction industry has enjoyed expansion over the last three years, but we are now seeing a slowdown in this growth. Construction starts grew by 7% in both 2016 and 2017 and slowed to 3% in 2018. A similar growth rate is expected in 2019. The biggest question is whether the slowdown will continue, or if growth will be followed by a period of stability. According to the Dodge Data & Analytics Forecast, the funding from State and local bond measures passed in recent years are still in play, and it is expected that federal spending on construction programs will increase once the appropriations bills are all passed. With these things in play, it is predicted that construction growth will decelerate further, but will not hit the point where the overall construction volume declines. 

The report (Dodge Data & Analytics) predicts that total US construction starts for 2019 will be $808 billion, which is on a par with the $807 in 2018. Furthermore, the report predicts that the major sectors of residential building will be down by 2%, non-residential building will match the 2018 figure of 3.4% and non-building construction will increase by 3%. 

There are, of course, other factors, such as rising interest rates, higher material costs and the challenge of finding qualified labor, which will be challenges to the construction industry throughout 2019. However, despite these challenges, we will still have growth in the US economy, some easing of bank lending standards and healthy commercial real estate trends.

These include; investors lining up to pour billions into Opportunity Zone Funds, with a report from Real Capital Analytics stating there is more than $6 trillion in unrealized capital gains eligible to be deployed into Opportunity Zones; strong industrial real estate demand in 2018, which is expected to continue through 2019; greater state financing for school construction and improved federal funding for public works.

In 2018, the total of all construction spending was forecast to be $1.321 trillion, with October figures indicating that this forecast would be surpassed, as spending hit $1.308 trillion. Construction spending in 2019 is estimated to be $1.341 trillion, in line with the predicted moderate slowdown in growth.

According to Cohn Reznick, the cost of construction across the US is on the rise. The price of materials has risen at an average of 5.8% in 2018, and that number is expected to increase with new tariffs imposed on steel, aluminum and lumber. Linesight is predicting a rise of about 3% in general construction costs, with a rise of about 2.3% in general construction salaries in the commercial real estate market. In the data center market, we are looking at a rise in general construction costs of about 2.8% in 2019. 

Workforce participation levels remain challenging 

The construction industry continues to struggle to attract and retain a strong labor force, as baby boomers retire and recruitment of millennials falls short of market needs. Contractors and consulting firms alike, are working on a number of educational initiatives geared toward attracting a younger and more diverse workforce, including visiting high schools and educating students about potential career options. A number of firms, including Linesight, have also begun to offer internships and apprenticeships across the US, to attract young people to the industry. 

Other initiatives include the Home Builders Institute helping to connect students with construction jobs and vocational programs, while organizations like the National Association of Women in Construction host events and provide educational resources to cater to the growing population of young women entering the construction industry. 

In order to overcome these and any future challenges, it is imperative that owners, developers and contractors strive to be more collaborative and innovative in their approach to identifying solutions.

In summary, the economy is showing signs of stabilizing after the last few years of growth, and the outlook for the rest of the year is cautiously optimistic. 

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USA Market Review 2019

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