- The first half of 2019 unfolded positively for the construction industry. At the highest level, the industry experienced a continuation of top-of-cycle volume, with low growth and an outlook for the next 6–18 months that is continuing to deteriorate.
- Construction volume grew moderately, with 5 percent spending growth in the first half of the year compared to the same period in 2018.
- However, a significant stratification emerged between public and private spending growth.
- While government spending is fueling the industry for now, the private spending cool-off represents a significant risk going forward.
- Labor costs continued to increase as the labor shortage showed no signs of abating. Overall, the first half of the year experienced the modest but steady growth we anticipated as the market continues to hum along at top-of-cycle volumes, despite warning signs emerging from leading industry indicators.
- For the next six to nine months, existing work and backlog will continue to keep the industry steady
- Volatility will continue as market signals from international economies, trade wars, Wall Street, the Fed and beyond create an uncertain business climate. These outside influences will be determining factors in whether the industry stalls in 2020.
- Overall construction costs will continue to grow, but more slowly than in years past.
- Downside risks strongly outweigh potential upside for construction over the next 12 months.
- Public spending and infrastructure remain bright spots, but risks are increasing in the sector due to political turmoil and the upcoming 2020 election.
- Despite mounting concerns of an impending slowdown, the economy has continued to grow at a slow but steady rate. Expect construction demand to continue to soften as willingness to invest in long-term projects sags.
- There are still reasons to be optimistic, as both consumer and government spending growth remains elevated. Yet multiple factors are creating strong headwinds for continued growth in 2020, including trade policy, softening corporate earnings, decreases in business investment and volatility due to the upcoming presidential election.
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- The construction industry has a modest buffer due to backlogs and long project timelines but will not be immune to the immediate effects of a slowdown. Work backlogs are already declining across private industries.
- Expect construction demand to continue to soften as willingness to invest in long-term projects sags. One bright spot will continue to be the growth in public and infrastructure spending.
- Tariffs have been a major factor in construction cost volatility over the past three years and remain the most volatile part of construction forecasting today.
- The impact of tariffs on steel and aluminum imports has stabilized somewhat over time, as markets have adjusted to the tariffs, and countries including Mexico and Canada have received exemptions.
- With volatility in U.S.-Chinese trade negotiations a constant, contractors are left to attempt to mitigate their exposure to major price swings they have no control over, and which have the potential to make or break the profitability of a project.
- The presidential election next year will only amplify the volatility, as it remains to be seen if President Trump will ease up on tariffs in an attempt to boost the domestic economy in the runup to the election or will double down on stronger tariffs as a campaign policy issue.