Engineering Inc - January/February 2018 - 7

GABRIEL PASSARELLI / GETTY IMAGES

By September 2010, more than 183,000 jobs had been lost in the
industry due to the recession, and A/E employment dipped to
1.27 million. Since then it has increased almost every month and
currently stands at 1.46 million. Analysts estimate the unemployment rate in the design industry hovers around 1 percent.
The downside of high employment is that it causes inflationary
pressures within the economy, which are typically counteracted
by the Federal Reserve raising interest rates.
The Federal Reserve kept the federal funds interest rate at close
to zero from 2009 to late 2015. Since then the Fed has gradually
bumped up the rate, and it stood at 1.25 percent in the fourth
quarter of 2017. Moody's deRitis anticipates more tightening in
2018 and beyond.
"We expect to see the federal funds rate rise to 3.0 percent over
the next three years," he says. "And if the labor market gets particularly tight, we could see a 3.5 percent rate by 2020."
A/E MARKETS

According to FMI, the construction market-as measured by
construction put-in-place-is forecasted to increase 5 percent
in 2018, 4 percent in 2019, 3 percent in 2020 and 4 percent in
2021 on a nominal basis.
Construction put-in-place, however, isn't an ideal metric for
design firms because the bulk of their contracting is done before
construction starts. Analysts estimate that engineering activity
tends to precede construction activity by 12 to 18 months.
"An engineering firm would cast an eye toward 2019 construction to get a sense as to how they might fare in 2018," says FMI's
Powell. He cautions it's not a perfect correlation. "The length
of the lag varies considerably depending on the type of firm and
project," he says. Larger and public-sector projects tend to have
longer lead times.
Engineering firm CEOs, responding to ACEC's third quarter
Engineering Business Index, were optimistic about the engineering market in 2018 but were concerned about maintaining their

profitability and backlog levels in 2019 and 2020.
When trying to project which individual market sectors will
outperform, Chartwell's Staloch recommends focusing on sectors
that are necessities. "There may be some dips, but overall they are
going to do well because they have to," he says.
Many analysts expect the roads and highways sector to be
steady. "A number of states passed major bond issues in recent
years, and those funds are working their way into transportation
projects," says Robert Murray, chief economist for Dodge Data
& Analytics.
Murray also expects the federal government to pass a modest
infrastructure package in the first half of 2018, which "would
provide a cushion if we do see a downturn in 2020."
The education sector will continue to grow, but the focus
of the market will change. For several years, college expansion
has driven the market, but those projects have been drying up
because the millennial generation has graduated out of the system. The next big demographic wave is flooding the elementary
level, so there will be more K-12 construction. One potential
drag on the sector would be if municipalities fail to provide
enough funds to meet the demand, according to Powell. And
demand is rising with enrollment expected to grow by 2.5 million students over the next three years.
Uncertainty about the federal role in health care has delayed
construction projects in the sector recently, but Murray expects
to see a lot more activity in the next few years. "They can't wait
anymore. They have to just go ahead," he says. There are several
big hospital projects in planning, but the bulk of the activity will
be storefront clinics and medical office buildings.
Powell says the office market can expect a couple more years of
above average growth but then will likely be slowed by capacity
issues. Within the sector, enterprise and co-location data centers
are among the strongest performers.
Manufacturing will do well, but much of the activity will be
in warehouses. "Despite strong growth in the warehouse sector,
vacancy rates have ratcheted back," says Murray. "Demand continues to outpace supply." The growth in warehouses is coming at
the expense of the retail sector, as online giants take market share
from brick-and-mortar stores.
The energy and power sector has been boom-and-bust over the
past several years, but Powell expects moderate growth over the
next few years. "Owners are regaining their confidence because of
pricing stability, and we project some improvement in spending,
particularly on the natural gas side," says Powell. "We also expect
solid investment in power that addresses transmission and distribution infrastructure demands."
Rebuilding Texas, Florida and Puerto Rico in the wake of the
hurricanes will cause a spike in the environmental sector over the
next two to three years.
Finally, the market sector lagging behind all the others is water.
"Nobody can deny there's a need there, but there's insufficient
funding," says Powell. "Because over 75 percent of our water and
wastewater infrastructure is publicly owned, the sector doesn't
draw enough private investment or innovation." ■
Gerry Donohue is ACEC's senior communications writer. He can be
reached at gdonohue@acec.org.

JANUARY / FEBRUARY 2018

ENGINEERING INC.

Table of Contents for the Digital Edition of Engineering Inc - January/February 2018