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Industry Forecast: Blue Skies Ahead

by: Smith and Howard

January 27, 2015

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The clouds are finally starting to lift on the U.S. construction industry. Or so say economists from three large U.S. construction and building trade associations during a joint meeting this past August. We are definitely seeing an increase in cranes throughout Atlanta, which is always a positive sign.

The findings of the 2014 Mid-Year Construction Forecast were issued by the Associated Builders and Contractors (ABC), the American Institute of Architects (AIA) and the National Association of Home Builders (NAHB). And the data generally indicates blue skies ahead for the industry.

Commercial market

In 2014, nonresidential construction spending in the United States was expected to reach its highest mark since 2009 — the last year of the Great Recession. According to analysis by ABC, growth in nonresidential construction starts is being led by double-digit increases in spending by the power generation, lodging and office space sectors.

Historically low interest rates, the stock market and continued gains in the energy sector all are helping the overall U.S. economy expand, said an ABC rep. These factors, along with relatively stable materials prices and better commercial real estate practices, would seem to foretell a robust recovery in U.S. nonresidential construction.

The organization predicts 7% nominal nonresidential construction growth in 2014, even though public construction still poses challenges.

Residential market

Demand from homebuyers also is expected to generate growth for the construction sector in the years ahead. New home demand is expected to expand in the next decade by as much as 1.9 million units per year, according to the AIA.

A primary reason for this, the organization noted, is a reduction in mortgage debt held by residential homeowners. For the first time since 2006, overall mortgage debt dropped below home equity value in 2014, an indication perhaps that many U.S. consumers are no longer “underwater” on their existing mortgages — and may soon be poised to buy again.

Still, compared with commercial building, residential construction growth is expected to be “modest” in the coming years, according to an NAHB economist. One particular reason for this lag is uneven wage increases for workers across the U.S. economy during the past decade. For example, the median income for typical first-time homebuyers in the United States (that is, individuals between the ages of 25 and 34) is substantially less than that of typical repeat U.S. homebuyers (individuals between 35 and 54 years old).

The NAHB expected moderate growth in housing construction to continue as employment goes up and more “household formations” occur. But the skilled labor shortage, as well as the uncertain supply of real estate in some areas, will likely push new home prices upward.

Employment outlook

The 2014 Mid-Year Construction Forecast pointed out the mostly positive employment growth in national construction employment since June 2011. This uptick culminated in the addition of 6,000 jobs in June 2014.

On a state-specific level over the last two years, the results were mixed. For example, Florida, California, Texas and Pennsylvania saw notable rises in construction jobs. Meanwhile, New Jersey, Arizona, Alabama and others experienced net losses.

Growth opportunities

Naturally, what the future holds for your local construction market depends on a variety of factors specific to your area. Contact Smith & Howard’s construction group for advice and guidance to help your business make the most of smart growth opportunities.

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