Summary of 2019 Construction Industry Forecasts
Going into 2019, should the construction industry expect further growth or deceleration? How is the shortage of workers impacting construction firms and how are they addressing these obstacles? A dive into the findings of few recent reports can help answer these questions.
The 2019 Dodge Construction Outlook released by Dodge Data & Analytics has estimated total U.S. constructions starts for 2019 to be worth $808 billion, compared with $807 billion in 2018. In 2016 and 2017, construction starts increased by 7% and 2018 saw a 3% increase. In dollar terms, residential building will decrease by 2%, nonbuilding construction will increase by 3%, and nonresidential building will stay the same as in 2018.
Changes in growth by segment:
- Commercial building will decrease by 3%
- Institutional building will increase by 3%
- Manufacturing plant construction will increase by 2%
- Public works construction will rise by 4%
The overall deceleration in construction is being influenced by rising material costs and increasing interest rates. Construction material prices increased by 5.3% in 2018 and are expected to see moderate increases in the early months of 2019. In 2018, the Federal Reserve raised its benchmark interest rate four times, reaching a range of 2.25 to 2.5%. A shortage in workers is also impacting growth.
The Construction Workforce
In July 2018 there were 6.94 million job openings in the U.S., and in October the construction unemployment rate was 3.6%.
According to a press release by Associated Builders and Contractors (ABC), “Job growth, high backlog, and healthy infrastructure investment all spell good news for the industry. However, historically low unemployment has created a construction workforce shortage of an estimated 500,000 positions, which is leading to increased compensation costs.”
The “2019 Construction Hiring and Business Outlook Report” summarized the findings of a survey of more than 1,300 contractors and reported that nearly 80% plan to add workers to their payrolls in 2019. Additionally, “more contractors expect demand for all 13 categories of projects in the survey to expand than expect it to decrease,” reports a Construction Dive article.
Addressing Workforce Shortages
Though respondents are optimistic about growth in 2019, nearly four out of five expect to have difficulty hiring to meet the demand. To prepare for this shortage, 37% of contractors are contracting and bidding at higher rates and 63% are investing in training programs. Construction firms are raising pay, increasing benefits and providing bonuses. 32% of respondents said their firms are using lean construction methods and prefabrication to reduce on-site work time.
Industry associations such as the National Electrical Contractors Association (NCEA) and the International Brotherhood of Electrical Workers (IBEW) are looking for workers in traditionally untapped areas; recruiting minorities, veterans, and women; sponsoring job fairs and providing scholarships for apprenticeship programs.
ABC’s Chief Economist Anirban Basu does not think a recession is likely in 2019 but warns inflationary pressures are likely to increase. Contractors will stay busy in 2019, but the outlook of years to follow are not as clear.