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Wednesday | 11 October, 2017 | 9:12 am

Construction

By Colin Linneweber

Rising costs // Spending on U.S. nonresidential building is expected to slow somewhat through 2018

CONTENTS   
> AEROSPACE
> AUTOMOTIVE
> COMPUTERS + TELECOM
> CONSTRUCTION
> DEFENSE
> ENERGY
> HEAVY EQUIPMENT
> TRANSPORTATION

 

October 2017 - Total year-to-date spending on nonresidential building in the United States over the first seven months of 2017 has failed to meet its lofty expectations following a booming 2015 and 2016, according to the American Institute of Architects Consensus Construction Forecast panel. Consequently, the AIA expects the industry to experience slower growth, at a rate ranging from 3.5 percent to 4 percent, for the remainder of 2017 and through 2018.

From July 2016 through July 2017, spending rose in the lodging, office, commercial, communication, healthcare, educational and amusement and recreation nonresidential building sectors. Of particular note, commercial project spending rose 15.5 percent and office building investment increased 10.9 percent compared with the same period last year.

Conversely, spending in the sectors manufacturing, water supply, conservation and development, highway and street, power, transportation, public safety and religious construction projects all experienced a decrease. Most notably, public service projects like sewage and waste disposal (down 19.9 percent), water supply (off by 11.8 percent), conservation and development (10.5 percent lower) endured the sharpest declines in 2017.

The AIA reports that the factors affecting construction spending in 2017 are a slowdown in U.S. economic growth, construction industry concerns and vulnerable construction sectors (especially retail, industrial, education and healthcare).

Inflation factor

The Bureau of Labor Statistics’ latest Producer Price Index report shows a 3.3 percent change between August 2016 and August 2017 in private capital expenditure, and a 3.4 percent change in government capital investment, indicating cost inflation.

“The steady pace of construction starts across the country is continuing to have an impact on the skilled labor workforce,” says Attilio Rivetti, Preconstruction and Procurement for Turner Construction Co. He authors the Turner Building Cost Index. “As a result, we are seeing subcontractors exercise greater caution in their pursuits. Their selective approach to bidding—so as not to become overburdened—also contributes to increased prices.”

AIA Chief Economist Kermit Baker agrees with Rivetti and elaborates on the reasons why construction spending has disappointed in 2017.

“Despite billings at architecture firms performing quite well this year, the larger construction industry is facing a range of issues,” said Baker. “The somewhat weaker outlook is driven by several factors, some dealing with the broader U.S. economy, some dealing with general construction industry fundamentals, and some dealing with weakness in specific construction sectors.”

Baker foresees a construction forecast downgrade in 2018, too. In fact, of all its sectors, Baker thinks that only healthcare and public safety construction spending will improve next year.

The years 2013 through 2015 were extraordinarily profitable times for the U.S. construction industry. By contrast, outlooks for the remainder of 2017 and 2018 are less optimistic. However, although not as lucrative as recent years, the supply chain around building and construction will likely witness only a marginal slowdown in committed spending during fourth quarter and next year.

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