Construction Outlook Finds Growing Downside Risks
The first half of 2019 was positive for the construction industry, but downside risks strongly outweigh the potential upside over the next 12 months, said JLL, Chicago.
“Overall, the first half of the year experienced the modest but steady growth we anticipated as the market continues to hum along at top-of-cycle volumes, despite warning signs emerging from leading industry indicators,” the JLL Second-Half 2019 U.S. Construction Outlook said.
Looking ahead, JLL said existing work and backlogs should keep the industry steady in the next six to nine months. “[But] while construction volume is not expected to drop off precipitously, forward indicators do predict a gradual to moderate decline in overall construction volume,” the report said. It cited several forward-looking indicators including the Architectural Billings Index, which recently saw new design contracts fall to a 33-month low.
“The medium-term fate of the industry will be tied closely to the direction of the overall economy,” JLL said. “Volatility will continue as market signals from international economies, trade wars, Wall Street, the Fed and beyond create an uncertain business climate.”
Construction volume grew moderately in 2019’s first half compared to the same period in 2018, JLL reported. Average materials costs increased while the prices of steel, lumber and gypsum all declined.
But JLL noted labor costs continued to increase as the labor shortage shows no signs of abating. This has boosted contractors’ fortunes. The USG Corp.-U.S. Chamber of Commerce Commercial Construction Index rose 14 points between the second quarter and the third to a new record 77 on a 100-point scale. Most–58 percent–contractors contacted for the survey called themselves highly confident the next 12 months will bring sufficient business opportunities, the largest percentage in the last four quarters.
“Contractors are thinking about the future and are optimistic about what’s ahead,” said USG Corp. CEO Christopher Griffin “Continued levels of confidence around backlog and profit suggest nonresidential construction will continue to play an important role in overall sector growth.”
