At the 2019 Dodge Construction Outlook in National Harbor, MD, Robert Murray, chief economist, Dodge Data and Analytics, was not at all pessimistic about the fortunes of the construction market, even though he is forecasting a no-growth scenario for total construction next year.
His take is that the market is “rounding the peak” of the current construction cycle, and he said. “When the downturn ultimately comes, it won’t be a replay of 2008. Market fundamentals are supportive of further growth.”
Murray added that overbuilding in the housing and offices markets were the root causes for the two most recent downturns in the construction market, and none of today’s market drivers have enough negative weight to pull down the construction industry to anything near the 2008 recession or the downturn caused by the implosion of the dot-coms around 2000.
He outlined his reasoning behind his 2019 outlook in a press release issued shortly after the Outlook meeting last week. “Over the past three years, the expansion for the U.S. construction industry has shown deceleration in its rate of growth, a pattern that typically takes place as an expansion matures,” he said in a Dodge press release. “After advancing 11% to 14% each year from 2012 through 2015, total construction starts climbed 7% in both 2016 and 2017, and a +3% increase is estimated for 2018.
“There are, of course, mounting headwinds affecting construction, namely rising interest rates and higher material costs, but for now these have been balanced by the stronger growth for the U.S. economy, some easing of bank lending standards, still healthy market fundamentals for commercial real estate, and greater state financing for school construction and enhanced federal funding for public works.”
While the market may be in the early innings of a gradual slow-down, there’s still plenty of major project work underway and on the drawing boards. Murray said the most active project types include data centers, Amazon warehouses, airports and sports facilities. He was particularly impressed with the amount of data center activity, and Dodge project data presented at the meeting showed at least $4.8 billion in data center work now underway. See the chart on page 2 for a list of some of the biggest projects now underway in these areas
Another economist at the meeting said the overall U.S. economy market may be gradually be slowing down. Cris deRitis, senior director, Economics, & head of Consumer Research for Moody’s Analytics, said he sees a soft landing followed by a “garden variety” relatively short recession of about a year, possibly and starting in 2Q 2020.