As this year comes to a close, and we turn the page to another chapter, it’s human nature to reflect on the past and contemplate what lies ahead. I know some people are categorically opposed to New Year’s resolutions. The older I get, the more I understand this mindset. I actually wish I could resist the urge to participate in this annual ritual. However, for some reason when this time of year rolls around, I always find myself back in the same place: making lists and scrutinizing what I could or should change, pondering how I could possibly achieve whatever unrealistic goals I have set for myself, and finally not allowing this self-imposed pressure to cause undue stress.
What will the journey look like for the construction industry next year? That’s a question EC&M attempts to answer every December, as we present the forecasts of top economists. As you’ll read in this month’s cover story, the experts are calling for flat to comparatively modest growth for 2019. However, as Freelance Writer Tom Zind explains, beyond that point, all bets could be off. “As consequential as some of the forces building in the economy could prove to be, organizations don’t see them coalescing to deliver a dramatically changed 2019 on the construction front,” he writes. “More likely, they concur, is a year of what might be characterized as a reprieve — staying an arm’s length from any severe impact that cycles, politics, economics, and the simple odds inevitably exert on construction trends. Beyond 2019, though, things could get dicier.”
What factors could send the forecast up or down? And how will tariffs, interest rates, and immigration policies shape construction costs? Those questions and more were answered in a webinar presented by Anirban Basu, chief economist for Associated Builders and Contractors, on December 12. Presenting fascinating predictions based on multiple construction market scenarios, Basu maintained that, for now, the global economy is still expanding — a trend that’s been the case for quite some time and has created a “reservoir of confidence.” If you look at projections for global economic growth in 2018, Basu is expecting the global economy to grow around 3.7% — about the same rate as last year. “There are emerging issues — don’t get me wrong — but the sky doesn’t appear to be falling,” he said. “I have heard many economists suggest that the global economic expansion is becoming less synchronized, and I believe that is absolutely the case.”
According to Basu, there are reasons for both optimism and concern. On the positive side, he says momentum (leading indicators remain generally positive — ABI, backlog, etc.) is in the economy’s favor; tax cuts are working their way through the economy; state/ local government finances are up; public spending on infrastructure is a priority; the United States still has the best global story; consumer and business confidence remains elevated; and wage growth has improved to its best level since 2009. On the other hand, concerns include inflation (labor and input costs on the rise); rising interest rates; the presence of growing global, national, and consumer debt; evidence of overbuilding in certain segments; corporate defaults continue to occur; the stock market looks expensive; geopolitical risks continue to exist; and there are signs of weakening business investment.
Despite many bright spots, including low unemployment, strong consumer business confidence, and wage growth, certain concerns linger. “Our biggest risk actually is inflation,” he says. “The headline inflation numbers have not been that problematic, but I think in 2019 you’re going to see headline inflation push higher. That might mean that the Federal Reserve, despite the fact that there might be evidence of a slowing economy and volatile financial markets, still has to continue to raise rates to preempt further inflation.”
