Recent economic disruptions considered in the following forecast include the domestic and foreign impact of COVID-19, recognition of a recession beginning in March 2020, high volatility across financial and equity markets, emergency policies set in place by the Federal Reserve, some early government stimulus, significantly lower oil prices, mounting political uncertainty and social unrest headed into the 2020 presidential election. Based on the speed, breadth and apparent lasting impacts of these various factors, FMI is anticipating the current recession to continue through the remainder of 2020 and possibly into 2021. Depth and reach of these disruptions will remain under close watch.
FMI Managing Director Jay Bowman Discusses the Construction Forecast
Total engineering and construction spending for the U.S. is forecast to end down 9 percent in 2020, compared to 0 percent growth in 2019.
All sectors and segments will see spending declines in 2020. Declines will be led by an abrupt contraction across residential and private nonresidential building segments. Current anticipated low-performing segments forecast in 2020 include religious (-20 percent), amusement and recreation (-17 percent), multifamily residential (-17 percent) and lodging (-15 percent). Milder declines are anticipated in select infrastructure and nonbuilding segments, including communication (-1 percent), highway and street (-3 percent), transportation (-4 percent) and public safety (-4 percent).
All segments that were previously in the up or stable categories have been downgraded to reflect the broad declines stated above. No segments remain in the up or stable categories.
FMI’s third quarter 2020 Nonresidential Construction Index (NRCI) at 36.9 reflects a stark 31 percent decline in industry sentiment from the second quarter reading. This is the most severe quarter-to-quarter decline reported in the history of conducting the NRCI. The diffusion index score, below the growth threshold of 50, indicates significant projected losses in future engineering and construction opportunities.
Total Construction Put in Place Estimated for the United States
Throughout the value of construction put in place includes the cost of architectural and engineering work. Source: U.S. Census and FMI Forecast
Total Construction Spending Put in Place 2019 and Forecast Growth (2019-2024 CAGR) by Metropolitan Statistical Area
Source: U.S. Census and FMI Forecast
RESIDENTIAL CONSTRUCTION PUT IN PLACE
Heightened unemployment rates will weigh on inventories, prices and confidence
Affordability and availability issues persist despite bottomed interest rates
Weakness through the prior expansion cycle, reconsideration of downtown living and increased remote working may provide stability and opportunities into economic recovery
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 CONSTRUCTION PUT IN PLACE
COVID-19 and protests caused major disruptions to travel (both business and leisure) nationwide
Industry fundamentals, including occupancy rates and RevPar, are expected to remain depressed well into 2021
Future losses tied to reduced mixed use and transportation investment
Drivers: Occupancy rate, RevPAR, average daily rate, room starts
Increased acceptance/leniency on remote working weighs on future demand
Open-floor plan design, shared office space and coworking business models will be tested
Reduced mixed use investment and corporate relocations
Rapid expansion of data center investment continues alongside 5G deployment and increased e-commerce and remote working adoption
Drivers: Office vacancy rate, unemployment rate
Ongoing and increasing bankruptcies through 2021
Increased acceptance and use of omnichannel sales (i.e., online curbside pickup)
Future losses tied to reduced mixed use investment and increasing vacancies
Demand for warehouse and distribution picks up across all facility types
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 firstname.lastname@example.org.
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. Brian’s combination of 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 email@example.com.
Emily Beardall is a senior analyst for FMI’s strategy practice. Emily is responsible for creating and developing tools to deliver innovative solutions for our clients. She is committed to utilizing these strategic tools to improve company performance and profitability. Emily can be reached at firstname.lastname@example.org.