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2015 construction forecast

Construction’s economic future is set to continue improving throughout the course of 2015. Not only are economists and industry experts optimistic, but so are small business owners in the construction sector. The majority says they are positive about their business’ outlook in the year ahead, according to a report by small business insurer, Hiscox.

Alex Carrick, chief economist for CMD, presenting at CMD’s webcast entitled, “Is the Pace of Construction Investment Set to Quicken?” pegged the U.S. economy with a growth of 3.2% during 2015––almost a full percentage higher than 2014. He believes the consumer price index should grow from 2014’s 1.7% to 1.9% with overall unemployment at 5.8%. Carrick credited the positive outlook to the country’s improving energy environment, a strong high tech sector, and continuing resurgence in manufacturing.

Ken Simonson, chief economist for Associated General Contractors of America, also lists three aspects of the economy that affect overall construction the most. The first is what he calls the “shale gale,” or the growth of the natural gas industry. While drilling for shale gas is a mining operation, the construction industry benefits both directly and indirectly, according to Simonson. There is work onsite getting the location set up for the drilling activities, and there are ancillary construction activities such as transportation and processing that are affected.

The second aspect he mentions is the Panama Canal expansion and the residential revival, especially the strong growth of multi-family. This expansion could affect construction activity at America’s ports, says Simonson, with dredging, piers, storage, warehouse, bridge, and tunnel improvements all figuring into the mix. He predicts that the best overall construction prospects in 2015 will be multi-family, manufacturing, oil and gas fields, pipelines, warehouses, lodging, rail, and data centers. In the long term, he predicts total construction spending will advance from 6% to 10%, with materials costs between 1% and 3% and labor costs between 2.5% and 5% each year until 2017.

Simonson points out that overall construction is still currently at 2009 spending levels. During 2015, he expects a slight rebound in residential from current rates of spending — private nonresidential remaining between 6% to 10% growth and public construction slipping back or staying flat.

Thirdly, Simonson includes the drop in government spending, increased online spending, and employers reducing their office space as a leading cause for the negative construction economic outlook. He predicts government spending could very well remain flat for the next 10 years, but sees the positive factors as strong enough to continue moving forward.

In a separate report, Robert Murray, chief economist and vice president of Dodge Data & Analytics is also optimistic. The Dodge Construction Outlook predicts that total U.S. construction for 2015 will rise 9% to $612 billion, beating the estimated 2014 starts by 4%.

“Financing for construction projects is becoming more available, reflecting some easing of bank lending standards, a greater focus on real estate investment, and more construction bond measures getting passed. While federal funding for construction programs is still constrained, states are now picking up some of the slack. Interest rates for the near term should stay low, and market fundamentals (occupancies and rents) for commercial building and multifamily housing continue to strengthen.”

Meanwhile, FMI Corporation, a provider of management consulting, investment banking, and development services for the engineering and construction industry, forecasts that total construction put in place will increase 7% in 2015, after adjusting for inflation. In the report, “FMI Construction Overview 2015,” the company characterizes construction’s future growth as “more sustainable than it has [been] in many years.” They caution that weaker areas need to recover before the industry can “hit on all cylinders” again.

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Duane was an owner/builder and a superintendent on single family and multi-family construction projects for many years before becoming an academic instructor who served as a director of education at an Air Force leadership and management school. Today, he writes and develops content for construction companies like Procore.

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