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Industry Viewpoint

2013 Construction Forecast and the Fiscal Cliff

As has been the case for several years now, we’re heading into the holiday season with that same uneasy feeling we’ve grown accustomed to. Key questions about the economy have yet to be answered. Will our government representatives figure out ways to compromise and agree on programs to fuel growth, or will they drive us right off the fiscal cliff? Will investment groups, banks, and large corporations allow private financing to open up a bit more, or will they continue to sit on their cash reserves? How will those in the public construction sector offset the looming funding limitations that will most assuredly take place next year? The answers to these questions will help determine the financial fate of many of us in 2013. So, once again, we turn to the research analysts and economists for answers, looking for guidance on which market segments within the construction industry we can rely on to fuel growth next year.

According to FMI’s “4th Quarter Nonresidential Construction Index Report,” panelists cited power, manufacturing, and industrial as their best bets in the near term. In the health care market, clinics and health care manufacturing and hospitals were also considered strong market segments. As noted in its “2013 U.S. Markets Construction Overview Report,” the residential market should also post slightly better gains next year (11%), as compared to this year, with multifamily work remaining quite strong (31%).

McGraw-Hill Construction is projecting healthy gains in the housing sector: single-family dollar growth of 24%, corresponding to a 21% increase in units; and multifamily dollar growth of 16%, and 14% in units. It also projects that the commercial building segment will grow 12% next year, with stores and hotels posting the strongest growth rates. Although McGraw-Hill notes manufacturing plant construction retreated this year, they forecast this segment to grow 6% in square feet and 8% in dollars next year.

Reed Construction Data projects improvements in all three categories of residential construction (single-family, multifamily, and improvements). It also sees growth ahead in all nonresidential categories — with larger percentage gains in the office, health care, and manufacturing market segments. In the heavy industry segment, Reed expects to see growth in the highway and transportation market sectors.

The Associated Builders and Constructors forecasts nonresidential construction spending will expand 5.2% in 2013. The group is also projecting growth in the following areas: commercial construction (10%), power (10%), lodging (8%), health care (5%), and manufacturing (5%). Most of this growth will be fueled by private financing.

Despite all of the distractions brought about in recent months by the presidential election, a looming fiscal cliff, and uncertainty in world financial markets, these forecasts bolster my optimism and support my gut feeling that the construction market is on its way to several years of solid growth. If you dig into the details of our annual market forecast story, beginning on page 10, I think you’ll come to the same conclusion.

Have a great holiday season and a very happy new year!

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