Total engineering and construction spending for the U.S. is forecast to end up 3 percent in 2019, compared to up 4 percent in 2018.
Spending growth in 2019 is expected to be led by public investment across both nonresidential buildings and nonresidential structures. Current top-performing segments forecast in 2019 include transportation (+9 percent), public safety (+6 percent), educational (+5 percent) and manufacturing (+5 percent). Forecast bottom-performing segments in 2019 include religious (-5 percent), multifamily (-5 percent) and lodging (-2 percent).
Key segments that were upgraded into our growth category going into 2019 include educational, manufacturing, and highway and street. Various others appear to be stabilizing this year, including three prior growth segments from 2018: single-family residential, amusement and recreation, and sewage and waste disposal. Both lodging and multifamily were adjusted into our down category this quarter with anticipated declines realized through the remainder of the year.
Total Construction Spending Put in Place 2018 and Forecast Growth (2018-2023 CAGR) by Metropolitan Statistical Area
Source: FMI Forecast
Residential Construction Put in Place
Single-Family Residential
Starts expected to rise slowly through 2020, alongside mounting affordability concerns
Employment growth has moderated while wages continue to slowly rise
Mortgage rates have reached 13-month lows in an effort to motivate buyers
Total Construction Put in Place Estimated for the United States
Source: U.S. Census and FMI Forecast
Nonresidential Construction Index (NRCI) Scores Q1 2011 to Q2 2019 (Scores above 50 indicate expansion; scores below 50 indicate contraction)
NRCI scores are based on a diffusion index where scores above 50 represent improving or expanding industry conditions, a score of 50 represents conditions remaining the same, and a score below 50 represents worse conditions than last quarter (or contraction).
The data in the NRCI is presented as a sampling of construction industry executives voluntarily serving as panelists for this FMI survey. Responses are based on their experience and opinions, and the analysis is based on FMI’s interpretation of the aggregated results.
Nonresidential Buildings Construction Put in Place
Lodging
New capacity, alongside lower employment growth, is expected to stall short-term investment
Occupancy rates and RevPar expected to remain healthy through 2020
Increasing competition from nontraditional forms of lodging (e.g., Airbnb)
Drivers: Occupancy rate, RevPAR, average daily rate, room starts
Office
Cost pressures and slowed employment growth are expected to weigh on demand
Major corporate campus projects are driving the overall trend
Demand for data center investment continues to expand rapidly
Drivers: Office vacancy rate, unemployment rate
Commercial
Traditional retail continues to evolve with rising vacancy rates and ongoing closures/exits (e.g., Payless ShoeSource)
Ongoing rise in e-commerce led by Amazon
Demand for warehouse and distribution investment continues to expand
Continued shift from coal to natural gas and renewable energy sources
Slow but sustained growth in electricity consumption, technology adoption continues to drive investment
T&D spending is expected to plateau in 2019 following two strong years
Drivers: Population, industrial production, government spending
Highway and Street
Widespread increases in related state and local revenues
Federal funding will experience some increase due to last year’s appropriations bill
Overall spending growth is driven by a handful of the largest states
Drivers: Population, government spending, nonresidential structure investment
Sewage and Waste Disposal
Passage of America’s Water Infrastructure Act in late 2018 and reauthorization of the Water Infrastructure Finance and Innovation Act (WIFIA) provide a substantial boost in funding
Residential needs and technology advancements will drive overall demand
Drivers: Population, industrial production, government spending
Water Supply
Passage of America’s Water Infrastructure Act in late 2018 and reauthorization of the Water Infrastructure Finance and Innovation Act (WIFIA) provide a substantial boost in funding
Recent introduction of the Water Quality Protection and Jobs Creation Act of 2019 further supports ongoing clean water supply infrastructure spending
Drivers: Population, industrial production, government spending
Conservation and Development
Increased USACE spending, driven from 2018 Consolidated Appropriations Bill
Jay Bowman is a principal with FMI. Jay assists a broad range of stakeholders in the construction industry, from program managers and general contractors to specialty trades and materials producers, with the identification and assessment of the risks influencing the strategic and tactical decisions they face. In this role, Jay’s primary responsibilities include research design and interpretation, based on developing an understanding of the context within which these organizations operate. Jay can be reached at jbowman@fminet.com.
Brian Strawberry is a senior economist with FMI. Brian’s expertise is in economic and statistical modeling. He leads FMI’s efforts in market sizing, forecasting, and building product/construction material pricing and consumption trends. The combination of Brian’s analytical skills and creative problem-solving abilities has proven valuable for many contractors, owners and private equity groups as well as industry associations and internal research initiatives. Brian can be reached at bstrawberry@fminet.com.
NRCI scores are based on a diffusion index where scores above 50 represent improving or expanding industry conditions, a score of 50 represents conditions remaining the same, and a score below 50 represents worse conditions than last quarter (or contraction).
The data in the NRCI is presented as a sampling of construction industry executives voluntarily serving as panelists for this FMI survey. Responses are based on their experience and opinions, and the analysis is based on FMI’s interpretation of the aggregated results.
Jay Bowman is a principal with FMI. Jay assists a broad range of stakeholders in the construction industry, from program managers and general contractors to specialty trades and materials producers, with the identification and assessment of the risks influencing the strategic and tactical decisions they face. In this role, Jay’s primary responsibilities include research design and interpretation, based on developing an understanding of the context within which these organizations operate. Jay can be reached at jbowman@fminet.com.
Brian Strawberry is a senior economist with FMI. Brian’s expertise is in economic and statistical modeling. He leads FMI’s efforts in market sizing, forecasting, and building product/construction material pricing and consumption trends. The combination of Brian’s analytical skills and creative problem-solving abilities has proven valuable for many contractors, owners and private equity groups as well as industry associations and internal research initiatives. Brian can be reached at bstrawberry@fminet.com.
