Regional Analysis 2018 USA

Knowledge Center

USA Market Review - section updated Sept 2018

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.  

Overview

In January of this year, The American Institute of Architects (AIA) Consensus Construction Forecast panel predicted industry growth for 2018 to be 4.3%. The panel’s mid-year review has revised this forecast to an improved 4.7% growth in spending for the year, and projected a further 4% growth for 2019. If these projections hold true, the US construction industry will have seen nine years of consecutive growth. 

The US economy will slow steadily for the rest of the year and into 2019, after the tax cuts boost and subsequent trade measures taken by the US Government impact on foreign trade.

The economy grew at an annualized rate of 4.1% in the second quarter of this year, boosted by US$1.5 trillion of tax cuts. However, many are now predicting that the US economy will slow steadily for the rest of the year and into 2019, after the tax cuts boost and subsequent trade measures taken by the US Government impact on foreign trade.  A decline of 3% is forecast for the third quarter of 2018, while a 2.7% decline is antipated in the fourth quarter. This decline is reflective of the trade measures taken by the US Government in recent months and the expected retaliation by the foreign governments affected.

Sectoral performance

The commercial market has performed better than expected for the first half of the year, which is one of the reasons that the AIA Consensus Construction Forecast panel is more optimistic. At the beginning of the year, the commercial sector was predicted to grow by 4%; however, growth for the year is now forecast to be a much-improved 6.7% for 2018. 

The global data center market is estimated to reach revenues of around US$174 billion by 2023 according to FMI, growing at a CAGR of approximately 4% in the period. Here in the US, the data center sector is averaging US$20 billion per annum and growing year-on-year at between 4%-8%, according to the 2018 CBRE Sentiment Survey. We believe that the data center market will continue to be highly active, with large continued investment in modular and hyperscale data center construction, investment in edge computing and continued improvement in data center efficiency. The Internet of Things (IoT) and Artifical Intelligence (AI) are also encouraging operators to invest in high performance IT infrastructure. 

The residential sector continues to perform well, with  robust spending growth predicted to be 9% by the FMI, driven by low unemployment rates, wage improvements, residential inventories, tax restructure and increasing interest rates all driving demand in the single-family residential market. In the multifamily residential market, vacancy rates remain low and prices continue to rise, particularly in the main dense urban areas. Rental demand is expected to increase due to the removal of residential tax incentives and rising interest rates. Apart from the usual hot spots of San Francisco and New York, the top five cities that are heating up and worth investing in over the coming years according to the Forbes Real Estate Council, are downtown Los Angeles, Austin, Houston, Dallas and Miami. 

The Industrial sector, which was predicted to have growth of only 1.1% at the beginning of the year, is now forecast  to record  a further reduction of 0.1% on top of the 6.6% decline in 2017. Some factors contributing to the slowdown are the 1% decline in mining output, US factory output being flat, production drops in plastics, aerospace, and the food industry, as shown in the first few months of 2018 as reported recently by the Federal Reserve Bank.

Threats to continued growth

The recent upsurge in construction spending activity, and the revised forecasts for the rest of 2018 and into 2019, are the result of a combination of several factors, namely:

  • A slowdown in the US economy was predicted at the outset of 2018. However with the US$1.5 trillion of tax cuts that were put in place, growth for the second quarter of the year was 4.1%, which was above expectations. But a slowdown is expected over the next two quarters, with 3% growth forecast in the third quarter and 2.7% in the fourth quarter. This is a slight increase from the 2% - 2.5% range originally forecast at the beginning of the year, and is reflective of the trade measures taken by the US Government in recent months and the expected retaliation by the foreign governments affected. 
  • Construction industry concerns about rising material costs, such as import tariffs on steel and aluminum products, price increases in diesel fuel, lumber, gypsum products and plastics construction products.
  • Availability of labor is still a major concern for the remaining half of 2018, with limited options for attracting labor into the industry and the scale of immigrant workers who account for close to 30% of the construction labor force. These mostly Hispanic workers are a vital part of the industry; the current focus on immigration could limit the availability of this labor pool and further exacerbate the current shortage. 

2019 early indicators

According to the AIA Consensus Forecast panel, the commercial sector will generate much of the expected gains for construction in 2018. However, the panel predicts that by 2019, the major commercial sectors will likely see slower growth, while industrial, healthcare and education facilities are projected to see spending gains of 4 % or more. The ongoing construction labor shortages and the continual rise in material costs will provide challenges to future growth. 

On the upside, the new tax reforms, including the lowering of the corporate tax rate from 35% to 20%, have boosted most of the industry’s sectors and encouraged investment in construction. The spate of natural disasters that hit the US in 2017 and 2018, and rebuilding following the damage caused by these disasters will have a positive impact on the construction industry in 2018 and into 2019. The recently enacted tax reform bill and the prospects of the Government’s long awaited infrastructure package are expected to provide opportunities for even more robust levels of activity within the industry. The AIA’s Architecture Billings Index (ABI) and other leading indicators for the industry also point to an upturn in construction activity for the rest of 2018 and into 2019.

Contributors: Pat Ryan, Steven Cooke, Damien Coffey, Declan Comer, Michelle Cooke, Eoin Byrne, Adam Tai, Joe Cusick, Alan Dowling, Alan Harmon, Shane Kearney, Kerri McCarthy, Kieran McGinley, Colin Morrisson, Ian Richardson