Engineering Inc. - January/February 2016 - (Page 4)
MarketWatch
BY G E R RY D O N O H U E
Construction Projections Rise,
Yet Industry Executives Remain Cautious
Strong Industry
Forecasts
According to Dodge Data
& Analytics, the value of
construction will grow at an
annual rate of 7.3 percent
through 2018. But Dodge
also expects that the overall
economy will cool in 2019
and 2020, with the construction market falling by about 4
percent each year.
FMI, which bases its projections on the value of put4
ENGINEERING INC.
Put-in-Place Construction Forecast
Estimated Percentage Growth
2016
2017
2018
2019
Total Residential
9%
7%
8%
8%
Total Non-residential Buildings*
7%
5%
5%
6%
Total Non-building Structures**
3%
3%
5%
5%
Total Put-in-Place
7%
5%
6%
7%
*Includes lodging, office, commercial, health care, educational, religious, public safety, amusement and recreation, transportation,
communication and manufacturing
**Includes power, highway and street, sewage and waste disposal, water supply, and conservation and development
Source: FMI
Total Construction Activity by Cycle
Cyclical Trough (T)=100, Based on Constant Dollars
190
175
2011-??
160
145
130
115
1982-1991
100
85
70
1991-2011
1975-1982
T
T+2
T+4
T+6
T+8
T+10
T+12 T+14
Years from Cyclical Trough
T+16
T+18
T+20
Source: Dodge Data & Analytics
in-place construction rather
than the value of construction
starts, presents a similarly
rosy picture through 2019,
forecasting an average annual
growth rate of 6.3 percent to
$1.31 trillion. Within that
forecast, nonresidential construction growth will average
about 5.2 percent annually,
and residential construction
will grow about 8 percent.
In this positive market
environment, why are engineering firm leaders feeling
cautious?
One factor is timing. Engineering firms make most of
their money in the project
planning phase, but the market data only begins measuring when construction actu-
JANUARY / FEBRUARY 2016
ally begins. Analysts estimate
that the engineering cycle
precedes nonresidential construction by as much as 24
months. So, while the construction market is expected
to top out in 2018-2019,
engineering firms could see
their business peak as early as
2016.
Another factor, says HDR
Engineering President Eric
Keen, is unease about the
public sector. "There is
uncertainty on the federal
budget and the election. As
a result, we see 2016 and
2017 as being relatively slow
growth."
Even though Congress
passed a long-term transportation bill, funding levels are
nowhere near what is required
to meet needs, and the
nation's water infrastructure
remains sorely underfunded.
"There is huge pent-up
demand across the entire
infrastructure sector but a
lack of political backbone-
on the federal, state and local
levels-when it comes to paying for it," says CDM Smith
Chairman and CEO Stephen
Hickox.
"Right now, the people
who control the purse strings
believe they will lose their
jobs if they vote to spend
money," says Gannett Fleming Chairman and CEO Bill
Stout. "We need for them to
believe they will lose their
jobs if they don't."
Another factor taking its
toll on CEO confidence is
global instability, including
the growing threat of regional
conflicts and weakness in
many major economies
around the world-especially
the apparent slowdown in
China.
Finally, Dodge's Camp says
the engineering industry has
seen a significant decoupling
of individual market sectors.
In the past, the market as a
whole tended to rise and fall
RICHARD NEWSTEAD
T
he U.S. economy has
been steadily growing
for several years, U.S.
gross domestic product is forecast to top 3 percent in 2016,
unemployment is hovering
around 5 percent and interest
rates are at historic lows.
That's welcome news for
the construction sector. The
value of construction starts has
climbed from $435.3 billion
in 2010 to a projected $674.3
billion in 2015, and market
forecasters see continued-
and even accelerated-growth
through 2018.
Despite an overall, positive
construction market outlook,
the ACEC Engineering Business
Index (EBI) showed a small
but steady decline in optimism
for five consecutive quarters.
The latest survey, completed
at the end of December 2015,
showed a slight rebound in
optimism.
"We're nowhere near the top
of the construction cycle," says
Kyle Camp of Dodge Data &
Analytics, which tracks construction activity nationwide.
"We should be feeling really
good right now, but we're only
feeling OK."
Table of Contents for the Digital Edition of Engineering Inc. - January/February 2016
Engineering Inc. - January/february 2016
Table of Contents
From ACEC to You
Market Watch
Legislative Action
Turning Back the Tides
2016 Legislative Outlook
Racing to Help
Going Global
Smooth Sailing
2016 Annual Convention Preview
Business Insights
Mergers and Acquisitions
Members in the News
Guest Column
Engineering Inc. - January/February 2016
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