Construction Sector Powers Forward

Last year yielded steady growth for the construction industry despite increasing headwinds, said JLL, Chicago.

“Primary [construction] indicators remained strong in 2018,” JLL said in its Construction Industry Powers Forward report, which noted total construction value put in place increased 5.1 percent year-over-year and total construction employment increased 4.5 percent. “Material prices drove overall cost growth, fueled by a major tariff escalation on construction materials,” the report said.

That momentum will likely carry the construction industry at least through first-half 2019, JLL said. “Despite recent turbulence in equity markets, robust U.S. economic fundamentals will be key to continued construction demand in 2019,” the report said. It forecast construction value put in place this year should remain close to 2018’s 5.1 percent growth rate.

The Commerce Department reported construction spending grew 0.6 percent in December 2018 to an estimated seasonally adjusted annual rate of $1,292.7 billion. December’s figure was 1.6 percent above December 2017’s $1,272.6 billion figure. Commerce said 2018’s total value of construction equaled $1,297.7 billion, 4.1 percent above 2017’s $1,246 billion figure.

The dual price pressures of increasing labor costs driven by low unemployment rates and elevated materials costs driven by tariffs and demand could make some projects infeasible and might limit margins on projects that do go forward, JLL said. “Expect material prices to remain near their current elevated levels throughout 2019,” the report said. “On the demand side, the latest releases from the Federal Reserve indicate a decreased likelihood of multiple interest rate increases in 2019, with the possibility of no increases this year. Any slowdown in rate hikes will help fuel investment and boost construction in 2019.”

The report cited several potential risks to the construction sector including trade war escalation, a deterioration of macroeconomic conditions or a worsening labor shortage that could make it impossible to hire at reasonable costs. But major potential boosts to the sector include possible passage of a large-scale federal infrastructure package, relief from currents tariffs and continued strong GDP growth.

JLL said many in the construction industry will spend 2019 waiting for concrete signs of a slowdown that many assume will arrive soon. “At the start of the year, all forward indicators for construction are still flashing green,” the report said. “Another year with growth equal to 2018 will be considered a success, only because the risk of a broader slowdown continues to loom.”