Associated Builders and Contractors Chief Economist Anirban Basu is predicting that the nonresidential construction sector will remain stable for the second half of 2018, yet warns of a potential economic downturn in 2020, according to a recent mid-year economic outlook published in Construction Executive magazine.
Although the strong U.S. economy contributed to a positive forecast, a rapid rise in interest rates and materials prices could cause a dip in construction sector spending, especially given ongoing international trade issues.
“Contractors are becoming more and more concerned about surging materials prices — especially metals,” says Basu. “On a year-over-year basis, iron and steel prices are up 13.5%, which not only impacts a contractor’s margins, but could potentially diminish demand for construction services overall.”
Prices for inputs to the overall U.S. construction industry expanded 2.2% in May, the largest monthly increase in 10 years. Prices expanded again in June by 0.8% and are 9.6% higher than at the same time one year ago, according to recently released U.S. Bureau of Labor Statistics data.
“And not only are materials getting more expensive, so are the costs of getting materials to jobsites,” says Basu. “Despite record low unemployment in the United States, an overall lack of skilled laborers in the construction sector and downstream markets contributes to the uncertainty.
“From electricians to painters to estimators, industry leaders are growing increasingly concerned about the dearth of skilled construction professionals and how human capital shortages have trickled down the supply chain,” says Basu. “This will not only contribute to increased compensation costs but also increased inflation and higher interest rates, which could potentially hinder both construction and real estate sector growth.”
To read the full mid-year forecast, “2018 Mid-year Economic Outlook: A Time of Growth and Intrigue,” visit constructionexec.com.