Construction Outlook for 2019

By: Amanda Ibey, writer/editor
   “Over the past three years, the expansion for the U.S. construction industry has shown deceleration in its rate of growth, a pattern that typically takes place as an expansion matures,” stated Robert A. Murray, chief economist for Dodge Data & Analytics.
   “After advancing 11% to 14% each year from 2012 through 2015, total construction starts climbed 7% in both 2016 and 2017, and a 3% increase is estimated for 2018,” said Murray. “There are, of course, mounting headwinds affecting construction, namely rising interest rates and higher material costs, but for now these have been balanced by the stronger growth for the U.S. economy, some easing of bank lending standards, still healthy market fundamentals for commercial real estate, and greater state financing for school construction and enhanced federal funding for public works.”
   What does this mean for construction starts in specific sectors? According to the 2019 Dodge Outlook:
  • Institutional building will advance 3%, picking up the pace slightly from its 1% gain in 2018 which itself followed an 18% hike in 2017. Educational facilities should see continued growth in 2019, supported by funding coming from numerous school construction bond measures. Healthcare projects will make a partial rebound after pulling back in 2018. Airport terminal and amusement-related projects are expected to stay close to the elevated levels of construction starts reported in 2017 and 2018.
  • Manufacturing plant construction will rise 2% following the 18% jump that’s estimated for 2018. The recent pickup in petrochemical plant projects should continue, and cuts in the corporate tax rate from tax reform should encourage firms to invest more in new plant capacity.
  • Public works construction will increase 4%, reflecting growth by most of the project types. The omnibus federal appropriations bill passed in March provided greater funding for transportation projects that will carry over into 2019, and environmental-related projects are getting a lift from recently passed legislation.
  • Electric utilities/gas plants will drop 3%, continuing to retreat after the exceptional amount reported back in 2015. New generating capacity continues to come on line, dampening capacity utilization rates for power generation.
   As for spending totals, nonresidential buildings is anticipated to tic up slightly in 2019 by 0.4% before increasing more substantially to 9.4% in 2020. The forecast for 2019 will be supported by Office (including data centers) and Amusement/Recreation, but there is downward pressure from slowdowns or timing of cash flow in Manufacturing, Lodging, Healthcare and Educational. Educational, Healthcare, Recreation, Office and Manufacturing all support growth in 2020.
   Amid all this national news, what does it mean for Vermont, a state that regularly creates its own unique market?
   That’s what you’ll find out in the next edition of our print magazine, The Build Board, (out in February), when we take an in-depth look at how the 2019 Vermont construction season is shaping up. We’ll talk with Joe Flynn, Secretary of Transportation, about what he expects in the highway and bridge world, how work zone safety is an area he’s taking very seriously, and how VTrans is making a concerted effort to get projects out to bid faster.
   You’ll also read about Chris Cole, Commissioner of Building and General Services, and his department’s goals to get more Vermont employers bidding on state work contracts, the retainer contracts his department has implemented, and how tariffs on China could affect project estimates and bids.
   Finally, you’ll get the economic outlook from Jeff Carr. Jeff has served as the Vermont State Economist and Principal Revenues Analyst for the Vermont Agency of Administration for over twenty-three years, including the last five gubernatorial administrations.