Underground Construction - October 2019 - 14

Daniel Shumate | Director, FMI Capital Advisors Inc.

Utility & Communications
Construction Update
The summer construction season of
2019 saw further decline for the Utility
& Communications Construction Index
(UCCI) companies relative to the S&P 500.
From June through September, the S&P
500 is up over 3 percent, while the UCCI
had declines of approximately 1.4 percent.
A host of factors contributed to this.
The tariffs placed on goods manufactured
in China have an impact on the cost of

equipment and materials, oil prices were at
their lowest levels since January, natural
gas prices bottomed out, and economic
concerns around housing signaled a slowdown in residential construction.
While there is significant utility
construction related to the repair and
replacement of existing infrastructure,
both wet and dry utility contractors
benefit from the installations of utility and

FIGURE 1: U.S. Residential Construction Put-in-Place Forecast
US Construction Spending Forecast
Millions of USD

2019

2020

2021

2022

2023

292,563

295,959

305,345

316,887

334,132

62,950

61,720

63,713

66,882

70,926

Improvements

196,184

194,284

198,063

203,957

209,997

Total Residential

551,696

551,963

567,121

587,726

615,055

2019

2020

2021

2022

2023

2.9%

1.2%

3.2%

3.8%

5.4%

Multifamily

-4.7%

-2.0%

3.2%

5.0%

6.0%

Improvements

0.6%

-1.0%

1.9%

3.0%

3.0%

Total Residential

1.2%

0.0%

2.7%

3.6%

4.6%

Residential Buildings
Single Family
Multifamily

Percentage Change
Residential Buildings
Single Family

Source: FMI Research

25%
20%
15%
10%
5%
S&P 500
UCC index

0%

Figure 2: YTD UCC Index. Source: FMI Research, S&P Capital IQ; as of September 9, 2019

14

OCTOBER 2019 | UConOnline.com

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t.Sep

19
Au
g.-

9
y-1
Jul

9
e-1
Jun

9
y-1
Ma

19
rilAp

19
r.Ma

9
.-1
Feb

9
.-1
Jan

De

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18

-5%

communication infrastructure required
for new homes. As FMI looks to 2020,
contractors with significant exposure to
the new-build markets may need to look
internally to ensure they are prepared
with a variable-cost structure and strong
backlog to weather a slow-down in the
growth of single-family homes.
Economists cite two major reasons
for the potential decline in residential
construction. The Fannie Mae Economic
and Strategic Research Group suggested
that the rising federal funds rate by the
Federal Reserve is having a detrimental
impact on willingness to buy. As the cost
of borrowing increases, it is more difficult
for a buyer to meet the expectations of a
seller for the value of a home. While the
Federal Reserve is executing relatively
conservative rate hikes, the increased cost
of debt is, nonetheless, impactful to the
housing market.
The second primary concern is
the population growth in the United
States. According to Bill Conerly, a
Forbes contributor, housing is built
to accommodate new residents and,

In September, a deﬁnitive
agreement was signed between
J2 Acquisition and APi Group
for $2.9 billion. The other major
acquisition was the acquisition by
Quanta of The Hallen Construction
Company, New York City. Hallen
is one of the largest investments
that Quanta has made into the
Northeast market and will provide
a strong presence in the New York
gas and civil markets.
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Underground Construction - October 2019

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