Engineering Inc. - November/December 2019 - 6

MARKETWATCH

Economists Certain Recession Nears,
Impact Still a Debate

ecession looms on the horizon. It is just a
question of when and what it means for the
engineering industry.
In a September survey by the National
Association for Business Economics, 38
percent of responding economists expect the
recession to hit in 2020, while 34 percent
forecast its arrival for
2021.
"Every economic expansion in American
history has ended with a recession," says
Anirban Basu, CEO and chair of Sage
Policy Group, Inc., and chief economist
of the Associated Builders & Contractors.
"This has been the longest-ever expansion, and the vulnerability is becoming
increasingly apparent."
Basu's economic forecast tracks with the
majority opinion. He expects a broader
economic turndown next year or in 2021.
Regarding the impact on the A/E/C market,
he anticipates that "activity will soften with
flat or declining demand for engineering
services beginning at some point next year."
Other industry analysts, however, are more bullish about prospects for the A/E/C sector.
"We are expecting stable growth in the engineering/construction sector over the next four years," says Michelle Meisels, principal of the engineering and construction practice at Deloitte
Consulting LLP. "We are forecasting an estimated increase of 7.8
percent over that period, so around 2 percent annual growth."
Greg Powell, managing director, investment banking at FMI
Capital Advisors, is also forecasting 2 percent annual growth
but only for the next two years. "Our overall outlook is pretty
tempered," he says. "The national economy is slowing, and there
tends to be a year or two lag between broader economic trends
and the impact on the A/E/C market."

compared with two or three years ago," says Powell. "It may have
improved enough to help soften any broader market downturn."
"Public infrastructure is going to drive most of the growth in
the industry over the next few years," adds Meisels. She says the
deteriorating infrastructure in many U.S. cities combined with
continued urban population growth opens up an enormous
opportunity for the A/E/C industry.
Both Meisels and Powell point to the
growth of "megaprojects" of over $1 billion
as another boost to the market. These
multiyear projects, such as LaGuardia
Airport, will inject a steady flow of funding
into the market.
States and local governments have led
the growth of infrastructure spending
over the past few years because the federal
government has pulled back, either through
policy or inaction. According to Basu, this
status quo is not sustainable.
"The lack of federal action on
infrastructure funding will ultimately catch
up to the industry," he says. "The Highway
Trust Fund is set for insolvency in 2021,
and there is anecdotal evidence that state DOT leaders are
becoming nervous about the availability of federal funding in
two to three years."

38 percent
of responding
economists expect
the recession to hit
in 2020, while
34 percent forecast
its arrival
for 2021

When will the U.S. Economy enter the next recession?
2019

2%
Don't know/no opinion

12%
Later than 2021

14%

COUNTING ON INFRASTRUCTURE

While few people are counting on Congress and the administration to follow through on their $2 trillion infrastructure
plan, industry analysts expect infrastructure to do some heavy
lifting over the next few years.
"We have seen a real improvement in infrastructure spending,
6

ENGINEERING INC.

NOVEMBER / DECEMBER 2019

2020

38%
2021

34%
SOURCE: NATIONAL ASSOCIATION OF BUSINESS ECONOMICS

GLOBALSTOCK / GETTY IMAGES / ISTOCK

By Gerry Donohue

Engineering Inc. - November/December 2019

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