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.

Steady Growth in Construction for 2016 Forecasted by FMI

Activity in the construction industry is expected to grow 6% for 2016, according to FMI, a Raleigh, NC-based construction consulting company. FMI adjusted total residential down a bit and nonresidential construction up. The largest growth markets are lodging (14%), office (11%) and commercial (8%); together these three markets represent 33% of nonresidential buildings for 2016.With the exception of commercial construction, all are strong markets but growing slower than in 2015.

FMI’s Second Quarter Nonresidential Construction Index (NRCI) report supported these growth trends. FMI surveyed construction executives via the NRCI survey. These executives increased their optimism to drive the total NRCI Index score from 55.6 in the first quarter to 61.3 in the second quarter.

“Despite all the distractions (Fed rates, oil prices, China, Brexit, terrorism), the construction industry continues to plod along undeterred at a growth rate of 6%," said Randy Giggard, FMI’s Manager, Marketing Information.  "The prudent among us will keep watch for signs of the next recession.  But at this time, it seems most likely that the industry will continue to expand for at least another 18 months.”

Current conditions are looking good for the construction industry:

• Interest rates remain relatively low for borrowers building homes and commercial projects.
• Unemployment remains low, so more people have jobs and are spending money—on the other hand, low unemployment translates into higher wages and difficulties finding workers.
• The consumer price index (CPI) shows little sign of inflation. Oil and energy prices also remain low. The numbers lead us to expect continued growth that could be sustained for several years.

Despite the growth projects, there are still some under lying tension in the market. Oil and gas producers mostly need higher prices to keep people employed and make a profit. This is especially true for those countries that derive most of the country’s income from oil and gas production. The Federal Reserve has been looking for an opportunity to raise interest rates to encourage banks to lend and savers to save, but wages have not shown much sign of rising rapidly for the working class although unemployment remains below 5%. Even though current conditions are mostly good, we can see there is tension in the economy and wonder what changes will come in the summer.

Read more about the FMI Construction Forecast.

(Source Material from FMI)

Construction Growth Forecasted for 2016

According to a recent forecast by FMI, a consulting group specializing in the engineering and construction industry, construction activity will continue to grow in 2016. FMI reported that construction put in place will slow to a 6% growth rate in 2016.

In 2015, construction added 11% growth to reach nearly $1.1 billion in construction put in place since 2008.  Signs that the rate of growth for the industry is slowing reduced the forecast for 2016; however, construction put in place will reach $1.6 billion.

The increase in construction activity has also spurred growth in construction employment. The U.S. construction industry added 37,000 net new jobs in March 2016 according to an analysis of  the recent  U.S. Bureau of Labor Statistics release by Associated Builders and Contractors (ABC). On a year-over-year basis, construction employment expanded by 301,000 net new jobs, the industry’s largest annual increase since May 2015.  

“Naturally, consumer spending-led recoveries such as this more directly impact residential construction segments than nonresidential," said ABC’s Chief Economist Anirban Basu. "Accordingly, the residential construction recovery continues to be a bit more forceful and that is likely to continue during the months ahead.”

Improving consumer economic and physical health and a growing population demanding new technologies and housing are contributing to the forecast of projected growth.. Those consumers, especially younger consumers are also highly mobile and gravitating most often toward larger cities for jobs and entertainment. With all the good news for construction markets, FMI notes that it must also echo the sentiments of the Federal Reserve and say: "Global economic and financial developments continue to pose risks,"

FMI recommends cautious optimism for 2016 and offers these forecasts for some key sectors:

• Manufacturing – Manufacturing construction took a heavy hit during the Great Recession, but it has more than caught up as of 2015, with a whopping growth of 44% for the year and a more modest 9% growth expected for 2016. In either case, new records are being set for manufacturing construction investment. While, at 76.1 for February 2016, manufacturing capacity utilization is still below the long-term average of 78.5, there are signs that new capacity is being well utilized. 
• Residential Construction  – FMI forecast residential construction will grow at a rate of 6% for 2016, with the largest rate of growth in multifamily housing (12%). Compared to 2015, growth will be cut by more than half. There are signs that some of the slower growth is due to homebuilders—like most all contractors—having difficulties fnding qualifed labor, thus needing to increase wages to attract more workers.
• Lodging – Lodging construction continued to rise above even increasingly optimistic forecasts for 2015 to end the year with 31% growth. At this point, FMI again expects the rate of growth to cool, but, at 15% for 2016, it will still be the fastest-growing construction market. With an expected value of $24.3 billion for 2016, this market is well below its high of $35.8 billion in 2008, but we expect these numbers to be more sustainable with a mix of new venues and refurbishing established locations.
  Office – After a strong show of growth in 2015 (22%), we expect office construction to cool in 2016 to a still respectable rate of 9% growth. Much of the growth has come from an increase in employment, especially in high-tech job markets. These high growth rates will taper off to more sustainable rates in 2017 and beyond. Continued growth in the technical sector and in larger metropolitan areas like New York City will keep rents and absorption of new space high.
  Power – After a strong year in 2014, power construction declined sharply in 2015, losing 14%. FMI expects another 4% drop in 2016, thus giving up the gains realized since 2012. The power industry is in flux due to changing fuel supplies using more natural gas and less coal as well as variable rates of growth in alternative energy sources like solar and wind. Power plants must be updated to keep up with changing requirements as well as to manage distributed generation sources. Despite losing subsidies and the lower cost of oil and gas, wind and solar power generation facilities are growing. The power industry will continue to consolidate as the average consumer reduces power use, but growth will slow in 2016 and 2017.

Download the Q1 Construction Outlook

Foreign Direct Investment in the United States

The following article originally appeared on the South Carolina Economic Developers Association site.

Foreign direct investment (FDI) in the United States has been a key driver in the recent manufacturing recovery. Capital investment in automotive, chemical, textile, aerospace and other manufacturing and production facilities by foreign-owned companies has been on a steady increase in the Southeast United States.

While reshoring activity accounts for a portion of this investment, the upsurge that may be most beneficial to U.S. workers is how investments are being redirected based on the new economics of manufacturing in the U.S. According to the Organization for International Investment (OFII), it is insourcing, or foreign direct investment (FDI) in the United States, that truly bolsters U.S. manufacturing. The OFII’s Foreign Direct Investment in the United States 2014 Report showed that in 2013, manufacturing accounted for one-third of cumulative FDI, in an amount exceeding $900 billion.

The Global Supply Chain Institute at the University of Tennessee conducted a study on outsourcing and global supply chains and reported that companies are adopting regional supply chain models. “Our research suggests that global supply chains across the world will eventually break into a series of supply pods where regional procurement and manufacturing operations will supply the major demand centers of the area, at least for a significant percentage of production requirements.”

These trends from the large U.S. market are attractive to many corporations overseas because companies are increasingly making their products in multiple stages from supply networks in many countries that are linked together by trade and investment. Some other attractive and key advantages that provide incentive to FDI are:

• Proximity to markets
• Dependable infrastructure
• Training and education
• Business-friendly regulatory environments

Southern states have a strong lead in building their manufacturing base. A 2011 Southern Business Development article stated “of total investments made in this country by foreign-owned companies since 2001, the South’s take has averaged 43 percent of the U.S. annual total.” The growing roster of facilities that have already been built increases the likelihood that new manufacturers will be close to their customers if they, too, build facilities in the south. A solid infrastructure, encompassing not only roads but ports and waterways, is already in place. And a 2014 USA Today article credited the south with a trifecta of incentives: “lower costs, generous state incentive packages and right-to-work laws.”

With continued growth on the horizon and a suite of advantages working in America’s favor, manufacturers will continue to look at capital investments in the United States.

Construction Put In Place to Grow 8 Percent in 2015

According to FMI, a consulting firm specializing in the construction industry, total construction put in place for 2015 is predicted to grow 8 percent. This supports earlier FMI predictions that CPIP will top $1 trillion in 2015, something the market has not seen since 2008. This indicates that the economy is on track for a resilient recovery.

“The FMI report is consistent with the increased level of activity we have been experiencing,” said Brian Gallagher, Marketing Director for O’Neal, Inc., an integrated design and construction firm. “Private sector activity, particularly capital investments in manufacturing, process chemical and other industrial sectors is ahead of last year.”

Geographically, larger cities are experiencing strong construction growth due in part to increases in rents and declining inventory for housing and office space. The sectors expected to experience the highest growth rate are:

•Lodging construction – 16 percent CPIP growth
•Commercial construction – 15 CPIP growth
•Manufacturing construction – 11 CPIP growth
•Office construction – 11 CPIP growth
•Residential construction – 9 percent CPIP growth

“The current growth cycle appears to be broad-based and sustainable.” Randy Giggard, managing director of research services for FMI. “Most of the new construction activity is in the private sector. Projects dependent on government spending, especially those involving infrastructure, continue to be at the mercy of politics.”

To obtain a copy of the report, please visit FMI.

Construction Put In Place to Grow 8 Percent in 2015

According to FMI, a consulting firm specializing in the construction industry, total construction put in place for 2015 is predicted to grow 8 percent. This supports earlier FMI predictions that CPIP will top $1 trillion in 2015, something the market has not seen since 2008. This indicates that the economy is on track for a resilient recovery.

“The FMI report is consistent with the increased level of activity we have been experiencing,” said Brian Gallagher, Marketing Director for O’Neal, Inc., an integrated design and construction firm. “Private sector activity, particularly capital investments in manufacturing, process chemical and other industrial sectors is ahead of last year.”

Geographically, larger cities are experiencing strong construction growth due in part to increases in rents and declining inventory for housing and office space. The sectors expected to experience the highest growth rate are:
•Lodging construction – 16 percent CPIP growth
•Commercial construction – 15 CPIP growth
•Manufacturing construction – 11 CPIP growth
•Office construction – 11 CPIP growth
•Residential construction – 9 percent CPIP growth

“The current growth cycle appears to be broad-based and sustainable.” Randy Giggard, managing director of research services for FMI. “Most of the new construction activity is in the private sector. Projects dependent on government spending, especially those involving infrastructure, continue to be at the mercy of politics.”

To obtain a copy of the report, please visit FMI.

Nonresidential Construction Index Rises According to FMI

The Nonresidential Construction Index from FMI rose two points in Q1. This normally is a positive economic sign. However, construction companies are facing the challenge of having enough people to keep up with increasing backlogs, warns Phil Warner, researcher for FMI.

The engineering and construction executives that comprise the NRCI panel are strongly optimistic about both the economy and their businesses. The diffusion indexes for the overall economy and the geographic economies where individual panelists do business rose more than six points, reaching 78.

The report discusses owners’ views on expectations for 2015 Construction Put In Place, top business challenges for 2015 and employment trends. Lack of a skilled workforce was among the top concerns. Other comments express some political angst. One panelist expressing, “Need a federal highway bill!” A different panelist says, “Another challenge is the increasing regulatory burdens placed on our clients and in turn our business. Some projects are taking almost two years to clear local planning hurdles. By the time the project is approved, budgets are obsolete, and the project may not be feasible.”

To obtain a copy of the report, visit FMI.

FMI Releases 2nd Quarter Construction Outlook Report

FMI recently released its Second Quarter 2012 Construction Outlook Report. FMI’s forecast calls for 3% growth for construction put in place (CPIP) by the end of 2012 and another 7% in 2013 for a total of $882.4 billion. This is $92.6 billion more than the lows of 2011.

Despite the constant confusion of news from Europe and uncertainty and inaction in the U.S. Congress, there are some positive signs in the economy. As one might expect, improving housing construction is helping to lead the way, especially multifamily housing. However, power construction is another strong point, and even commercial construction will show signs of rising from its slumber. Nonetheless, slow growth may be even more challenging than large market drops or boom times, because it requires improved management, precision market research and creative business development.

Residential construction is coming back lead by 32% growth in multifamily housing. Innonresidential construction,the forecast is mixed with health care and manufacturing showing the most positive signs of growth. Predictions for other markets are as follows:

• Lodging CPIP is expected to grow 4% and rebound somewhat to 7% and 8% in 2013 and 2014.
• Office construction should be 4% by the end of 2012 and improve to around 6% for 2013 through 2014.
• Commercial construction is beginning to grow again. FMI expects 5% growth in CPIP this year, followed by 8% growth in 2013 to around $49 billion.
• Health care construction is expected to only rise 3% in 2012, that will strengthen to double digits by 2015, achieving record highs around $52.6 billion.
• Education construction will have only a 1% increase in CPIP in 2012 and a slight rise of 2% in 2013.
• Religious construction will be flat in 2012, with some revival in 2013 to 6% growth at $4.3 billion.
• Public safety construction will be flat in 2012, but will the grow 6% in 2013 to $4.3 billion.
• Amusement and recreation construction will climb 8% to $17.4 billion in 2013.
• Transportation construction will grow 3% in 2012 and to 5% through 2015.
• Communications construction will experience steady growth of 4% to 6% through 2015 with 2012 ending up around $18.5 billion.
• Manufacturing construction is expected to rise 3% in 2012 and show steady increases to 2015.
• Power-related construction is forecasted to have a 10% rise for 2012 and another 10% in 2013 to $108 billion.
• Highway CPIP will drop 2% in 2012 and grow just 1% in 2013 to reach $77.7 billion or back near 2007 levels.
• Sewage and waste disposal CPIP is expected to be around $23.9 billion.
• Water supply is beginning to grow, but will gain only 2% in 2012 and 3% in 2013 to reach $14.7 billion.
• Conservation and development growth is expected at 2% in 2012 and demonstrate slow, steady progress through 2015.

FMI Releases Nonresidential Construction Index for the First Quarter, 2012

FMI (www.fminet.com), the largest provider of management consulting and investment banking to the engineering and construction industry, announces the release of its Nonresidential Construction Index report for the first quarter of 2012.
The NRCI gained 7.8 points over last quarter to 58.1 this quarter. This positive move to start the new year is not exactly the sign of a bull market for construction, but continuing confirmation that panelists believe that the construction activity is following the lead of the slowly improving economy. There are good signs in hiring plans for 2012, as well as construction-put-in-place predictions. However, panelists indicate that low project pricing and high competition are still driving the market place.

• Hiring: A five percentage points increase over this time last year, 42 percent of panelists indicated a zero to five percent increase in full-time direct employees. Additionally, fewer panelists indicated a reduction in salaried employees.

• Construction Put In Place: Expectations for CPIP are positive but cautious, as 41.3 percent of panelists expect growth of 0.5 to 2.5 percent for 2012.

• Overall Economy: The component for the overall economy showed the strongest improvement of all index components with a jump from 43.6 last quarter to 68.7 in the first quarter, a 25 point gain. This score reflects the improvement in many economic indicators including the unemployment rate.

• Nonresidential Building Construction Market Where Panelists Do Business: At just 54.9, the local markets for nonresidential construction are inching ahead. However, panelist responses reflect a perception that their own business is performing a bit better than the overall nonresidential construction market. This indicates that local markets are still very competitive.

• Cost of Materials: Despite a slow economy, material costs continue to rise, with no panelists indicating material costs were lower than last quarter. The cost of materials component moved down nearly 5 points to 26.2. This factor is continuing drag on the overall index and is likely to raise the cost of projects while lowering profit margins for contractors.

• Cost of Labor: The cost of labor improved just slightly to 41.5, indicating little change over the score of 40.0 last quarter. However, no panelists indicated they were experiencing lower labor costs.

• Productivity: Contractors are continuing to make moderate gains in productivity. However, at 52.9, this component is still too weak to offset rising costs for labor and materials.

To download a copy of the full report, click here. For reprint permission or to schedule an interview with the author, please contact Sarah Avallone at 919.785.9221 or savallone@fminet.com.

FMI's Construction Index Released for 2nd Quarter 2011

FMI recently released its Nonresidential Construction Index (NRCI) report for the second quarter of 2011. The report indicates a continued increase in construction activity. The NRCI moved up 1.4 points to 58.7 for the second quarter, depite of adjustments made to accommodate the rising cost of materials, For the fifth quarter in a row, the Index has been slightly positive.

Nonresidential construction continues its slow recovery. The report cites an increase in consumer spending, rising material costs, skyrocketing gas prices, an increase in auto sales, and the impact of the Japanese disasters has had on the supply chain as impacts to the construction economy.
Read More


Log on to FMINet.com to download a complimentary copy of the full report: NRCI 2Q 2011