FMI Forecasts Continued Growth in Construction for 2017

FMI Corporation has released its latest construction forecast, the FMI Outlook, in a new streamlined format, designed to improve user experience and access to important data.

FMI’s Q3 2017 forecast predicts an increase of 4% for total construction put in place for 2017 and an increase of 5% in 2018.

The primary growth segments in 2018 are expected to include residential, commercial, lodging, office and manufacturing — all with forecast growth of 5% or more. Most other segments are likely to grow roughly with the rate of inflation and may therefore be considered stable. Sewage and waste and water supply are the only segments expected to decline in 2018.

The score for the third quarter Non-Residential Construction Index slipped two points to 58.8 but maintains a level of optimism for construction spending in 2018.

Forecasts for some key sectors:

Lodging — Up 5% for 2017, lodging construction is coming off several years of strong double-digit, year-over-year growth since 2012. Supply is outpacing demand, causing increasing vacancy rates.

Office – Up 9% for 2017 to $73.4 billion. Still seeing positive growth, but moderating after double-digit gains during the past three years. Slowdown in high-tech development of office space is the primary drawback on forecast growth.

Commercial — Up 10% for 2017. Several traditional brick-and-mortar retailers closing stores in large numbers. Continued rise in e-commerce as a percent of retail sales driving demand for warehouse and distribution center construction.

Read the full report.

Nonresidential Construction Spending Rebounds

A series of recent economic reports point to continued to positive economic momentum in the construction industry. Nonresidential construction spending bounced back in October, expanding 1 percent on a monthly basis and 4.3 percent year over year, according to a Dec. 2 release from the U.S. Census Bureau. Spending for the month totaled $611.8 billion on a seasonally adjusted, annualized basis. Additionally, the government revised the September spending figure up to $605.8 billion from $596.1 billion.

“This month’s increase in nonresidential construction spending is far more consistent with the anecdotal information floating around the industry, which generally indicates that firms are becoming busier and that backlog is expanding,” said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. “Although last month’s numbers for nonresidential construction spending and employment were disappointing and could have implied the nation’s nonresidential construction recovery is stalling, that is not the case.

“The outlook for 2015 remains upbeat,” said Basu. “The economy has gained momentum over the past six to seven months and that is consistent with more aggressive construction starts and spending during the year to come. Even as the economy has gained momentum, the Federal Reserve has remained extraordinarily accommodative due in part to benign inflation readings. Low interest rates combined with solid economic momentum likely mean expansion for the nonresidential construction industry during the year ahead.”

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Recession Rebound

Many engineering and construction firms were slow to rebound from the recession, but a few of them made quicker recoveries than might have been expected.  What were the secrets and strategies of those firms to "recession-proof" themselves?

My firm, O'Neal, Inc. - an employee-owned company that offers comprehensive engineering, procurement, and construction services - tripled its revenue at a time when other firms were still being hit hard.  Several factors account for that success, but all share the common theme of identifying areas in which growth and opportunities continued to occur.

Recently, Kevin Bean and I co-authored an article that appeared in civil + structural ENGINEER.

Please click here to read more.

Positive Signs for Manufacturing and Home Building Industries

U.S. manufacturing output increased in May and factory activity accelerated sharply, spurring hopes of a strong rebound in economic growth this quarter.  This represented an increase in industrial output for the third time in four months, a indication that growth in the critical manufacturing sector is back on track following a challenging winter.

“The growth in manufacturing output and positive news from the home building industry are indications of a strengthening economy,” said Brian Gallagher, Director of Marketing for O’Neal, Inc., an integrated engineering and construction firm specializing in design and building chemical, manufacturing, and pharmaceutical facilities.

Industrial production rose a seasonally adjusted 0.6% from April, according to the Federal Reserve. Capacity utilization, a closely watched gauge of slack, ticked up 0.2 percentage point to 79.1% in May.

Another bright spot was the National Association of Home Builders/Wells Fargo index of homebuilder confidence. That index rose four points to 49 in June, which was just shy of the threshold that would be considered favorable for building conditions. The improving sentiment bodes well for the housing recovery, which stalled last year after a run-up in mortgage rates.