Associated Builders and Contractors (ABC), in December, forecasted a slowdown of growth in the U.S. commercial and industrial construction industries for this year. While contractors are vunerable to rising commodity prices and interest rate increases in the middling consumer-led recovery should still lead to modest growth in construction spending and employment.
“The U.S. economy continues to expand amid a weak global economy and, despite risks to the construction industry, nonresidential spending should expand 3.5 percent in 2017,” said ABC chief economist Anirban Basu. “For more than two years, the Federal Reserve has been able to focus heavily on stimulating economic growth and moving the nation toward full employment. However, as commodity prices, including energy prices, firm up and labor costs march higher, the Federal Reserve will need to be more concerned about rising inflation expectations going forward. Associated increases in interest rates could have significantly negative impacts on certain asset prices, including stocks, bonds, commercial real estate and apartment buildings.
“Contractors also should be prepared for increases in commodity prices, which could translate into further stagnation in construction spending volumes if the purchasers of construction services are not prepared for related cost increases,” warned Basu. “Additionally, data from the U.S. Bureau of Labor Statistics indicate that construction job openings stand at a 10-year high and that average hourly earnings for construction workers rose above $28 per hour in 2016. The demand for construction workers is positioned to remain high and is likely to increase already significant wage pressures.
“However, there is a bullish scenario,” said Basu. “According to the Bureau of Economic Analysis, the average age of all fixed assets, including structures such as factories and hospitals, stands at 23 years — the oldest on record tracing back to 1925 — and there is a collective awareness among American enterprises that they will need to replace much of their capital stock in future years. In addition, now rising energy prices could produce more investment and rising earnings — potentially translating into better support for asset prices, ongoing hiring and consumer spending.
“Despite some headwinds, many construction firms continue to report that they remain busy and ABC’s most recent Construction Confidence Index revealed that while construction firm leaders are not quite as confident as they were in prior quarters, most continue to expect growth in sales, margins and staffing levels,” Basu said.
Basu’s full forecast is available in the December issue of ABC’s Construction Executive magazine, along with the regional outlook for commercial and industrial construction by Dr. Bernard Markstein, president and chief economist of Markstein Advisors, who conducts state-level economic analysis for ABC. Free Construction Executive subscriptions are available to construction industry professionals.
In other news, ABC, last month, welcomed the introduction of the Fair and Open Competition Act (H.R. 1552) in the U.S. House of Representatives by Rep. Dennis Ross (R-Fla.). ABC vice president of Labor, Regulatory and State Affairs Ben Brubeck issued the following statement in support of the companion bill, S. 622, which was introduced in the U.S. Senate on March 14 by Sen. Jeff Flake (R-Ariz.) and would ensure controversial project labor agreements (PLAs) cannot be mandated on taxpayer-funded construction projects.
“The Fair and Open Competition Act will create more construction jobs and help taxpayers get the best possible construction project at the best possible price by increasing competition, reducing waste, and eliminating favoritism in the procurement process. This important bill will create a level playing field where more qualified contractors will compete for public construction contracts because the government cannot encourage or prohibit project labor agreements.
“When mandated by the government, PLAs discriminate against the 86.1 percent of the private U.S. construction workforce that chooses not to join a labor union and drive up the cost of taxpayer-funded construction by 12 percent to 18 percent compared to projects not subject to PLA mandates. ABC supports this bill because it will create jobs for veterans, minorities, women and local workers not affiliated with unions, and will create opportunities for small businesses and qualified contractors hurt by PLA requirements. ABC and a coalition of construction and business groups urge Congress to immediately pass this common-sense legislation and put an end to these anti-competitive and costly contracting schemes.”
Associated Builders and Contractors (ABC) is a national construction industry trade association representing nearly 21,000 chapter members. Founded on the merit shop philosophy, ABC and its 70 chapters help members develop people, win work and deliver that work safely, ethically, profitably and for the betterment of the communities in which ABC and its members work.