The Future of Construction, Big or Small

Construction worker on a busy street

Determining the future of construction is complicated given the turmoil of today’s economy and the public’s perception of the government. It’s difficult to decide on a direction when the wind is constantly changing direction.

To listen to the economist and compare their forecast with that of Wells Fargo Finance and McGrall Hill Financial, they have different opinions on most fronts and agree on few.

The problem lies with government spending resulting in a national debt climbing out of control with no viable plan to cap it. It makes the market extremely volatile. If you ask five economists their opinion you get five different answers – six if one went to Harvard.

They will also attempt to back up their prediction with past figures or arguably reliable assessments. Your best bet is to be cognizant of the financial analysis presented by these institutions with the understanding that they base their projections on resolutions to the taxes planned for 2014.

McGraw Hill Financial warns that the fiscal cliff poses a serious risk for near-term projections for the economy and construction industry. The following projections are dependent on the successful efforts to curtail the rise in the debt and prevent the slide into recession. If the government is successful, there are several positive notes that will help the construction industry, such as exceptionally low interest rates improving marketing prospects for certain types of construction.

McGraw also projects a modest increase in construction by about 5-percent, up a percent over last year.

New residential home constructionWells Fargo speaks in terms of Optimism. This optimism is expressed by equipment rental agencies. They predict that residential starts will increase by 7.8% surpassing non-residential.

The American Institute of Architects (3) estimates a rise, though unspectacular, in the construction of industrial projects with healthcare being the strongest sector.

Additionally, they report that housing has finally turned and is recovering slowly. Most segments signal increases across most of the country. This is partly due to quickly diminishing distressed properties. The fourth quarter of 2012 showed an increase of 9 percent while existing homes were up close to 11 percent.

The most promising were new starts up almost 30 percent. All the major forecasters estimate that new construction will increase  another 25 to 30 percent this year.

Again, current events can have such a dramatic impact on all these predictions. All these automatic cuts in federal spending and $109 billion in sequestration for the fiscal year directly effect construction activity.

Never before were we as a nation been so far in debt and at the mercy of current events influencing so much of our lives.

Commercial facilities have a brighter outlook for 2013 with growth predictions of about 9 percent and expected to rise another 11 percent. Hotel construction is expected to dominate.

The Associated General Contractors of America (AGC)(4) has long been the leading indicator for forecasting the future of construction.

Construction of the 41 story Denver SpireThe AGC is a collection of over 30,000 firms to include over 70,000 of America’s leading general contractors as well as 10,000 specialty contracting firms. Their well respected opinion can be counted on for as much accuracy as is possible in this fluid environment. They summarize the health of the construction industry like this:

Construction has been experiencing a turndown for six years at a cost of more than 2 million jobs and turned a $1.2 trillion a year industry into a $800 billion a year industry.

Finally, Construction’s outlook is heading in the right direction. More staff are being added and more firms are poised to expand this year, and even confident enough to increase charges for their services.

As welcome as this sounds, many firms are torn in their amount of optimism for 2013. They see no significant recovery until 2014. Significant economic problems still plague many firms and they feel the public sector will remain stagnant.

As good as the generally upbeat outlook appears, many firms are still facing significant economic headwinds in 2013. Most firms expect the public sector construction market to shrink. For this reason they are reluctant to purchase equipment and would prefer to be safe and lease.

Health care costs continue to rise costing a good percentage of the consumer’s income. As cost of living rises, the consumer suffers when applying for credit due to the income versus debt percentage.

Credit ratings for a low interest rate must be near perfect and the correct income to debt ratio, which severely limits the number of consumers who meet the criteria.

The responses overall varied little regardless of what segment the contractor fell into.

Look at these sites for complete predictions to make the best assessment as to which segment of the industry you will focus your attention. At the same time, keep up with current events and rethink purchases versus leasing.

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Sources: https://www.wellsfargomedia.com, 

Photo Credit: 

kohlmann.sascha / Foter / Creative Commons Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0)

Great Valley Center / Foter / Creative Commons Attribution 2.0 Generic (CC BY 2.0)

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