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By: Kendall Jones on May 25th, 2018

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2018 U.S. Construction Prospects

Construction Industry News

Today we’ll be looking at what economists Alex Carrick, ConstructConnect; Kermit Baker, American Institute of Architects (AIA); and Ken Simonson, Associated General Contractors of America (AGC) have to say about the outlook for construction in 2018. We’ll also look at some of the things they like about construction prospects for the remainder of the year and beyond as well as areas of concern that may be cause for worry.

These forecasts were presented in the U.S. Construction Prospects – Much to Like (Much to Worry About) webcast presented by ConstructConnect, the Associated General Contractors of America (AGC) and the American Institute of Architects (AIA).

2018 Construction Starts & Spending Forecast

Construction spending and starts are expected to remain strong in 2018, but again the amount of growth is forecast to be a bit more subdued.

ConstructConnect’s construction starts forecast for 2018 is a 0.4% increase to $777.1 billion from the $774.2 billion recorded in 2017. Nonresidential construction starts are expected to decline 6.1% in 2018 to $291.3 billion and then experience a 5.0% growth in 2019. Residential construction is forecast to grow 2.7% this year to $323.3 billion and then increase another 9.3% in 2019.

Civil construction starts are forecast to continue growing over the next several years although not quite at the 24.7% experienced in 2017. Civil is expected to increase 8.9% in 2018 and 6.1% in 2019. Commercial construction (offices, parking garages, and transportation terminals) is expected to have a 1.5% increase in starts this year and 16.4% growth in 2019.

Industrial, which includes manufacturing facilities and warehouses, is expected to see a 21.2% decrease in starts in 2018 and a 10.6% increase in 2019. Retail construction starts are expected to decline 8.6% in 2018 and then fall another 11.3% in 2019.

Ken Simonson has forecast growth of 1% to 5% for nonresidential construction spending in 2018. Segments like power, education, and transportation are expected to see strong growth this year. On the residential side, single-family construction can expect growth around 8% to 10% in 2018 while multifamily residential construction spending is expected to remain flat compared to 2017.

The AIA’s Consensus Construction Forecast Panel for nonresidential construction has spending growing 4.0% in 2018 and 3.9% in 2019. Commercial construction spending should expect about a 4.4% increase in 2018 and only 2.9% in 2019. Industrial construction is expected to grow 2.8% in 2018 and 5.2% in 2019. Institutional construction should see about a 3.8% increase this year and then grow another 4.3% in 2019.

Construction Employment & Wages 

Construction employment has been steadily growing and is getting close to being back to where it was prior to the recession. Currently, the growth rate is around 3% – 4% for both residential and nonresidential construction employment. The unemployment rate in construction is at 6.5%, much higher than the national average of 3.9%.

Job openings rates and levels in construction are high but remain lower than the rates and levels for all jobs, which are currently at a historic high. In March 2018, construction employment was up in 38 states and the District of Columbia and down in only 12 states, mostly in the middle of the country.

Compensation rates and wages are rising faster for construction jobs than for all jobs nationally. Hourly wages are up 3.5% to 4% year-over-year and weekly compensation is up around 4% to 5% over the last year.

That being said, the AGC reports that 57% of firms are having a hard time filling salaried positions and 71% are having trouble filling craft labor positions. Employers are having to increase wages to find experienced workers and are taking on more workers with little or no experience in the construction industry,

Another good sign for construction is that employment some fields related to the industry are reporting strong employment numbers. Real estate, building materials and supplies dealers and machinery and equipment rental and leasing are all seeing strong jobs growth.

Design Activity

According to the AIA’s Architecture Billings Index, billings and design contracts have both experienced strong growth in 2017 and 2018. Billings averaged a monthly score of 52.2 in 2017 and is doing slightly better so far in 2018 with a monthly average of 52.6.

For the ABI, scores above 50 indicate an increase in billings, while scores below 50 indicate a decrease. The ABI acts as a barometer for future construction activity and spending with construction spending following architectural billing by approximately nine to twelve months.

New design contracts have fared even better. In 2017, the monthly average score for the design contracts index was 53.6 and is averaging a score of 53.3 in 2018. This has led to a backlog growth at design firms. Nationally, design and architecture firms are reporting an average backlog of work of 6.3 months.

Building Material Prices

Costs for building materials have been accelerating prior to any talk of possible tariffs. The cost of building materials is up 6% in April 2018 compared to April 2017.

Softwood lumber is up 70% over the past nine years. Cement, copper and steel prices are all up around 20% during that same period. Other materials like gypsum products and aluminum have seen strong increases over the past year.

The threat of tariffs and possible trade wars with other countries could exacerbate the rising costs of building materials if they become reality. It’s still too early to determine how much of an impact this will have without knowing what tariffs will be implemented.

For example, the construction industry uses a little less than half of all domestic steel consumption. About 25% of the steel used in the U.S. is imported and any tariffs could cause the price of steel to spike. For buildings that use steel framing, the material costs account for about 15% of total material costs, meaning a large increase in pricing will lead to higher construction costs.

Construction Productivity

Despite reports that construction productivity has been flat or declining, a new study from the Bureau of Labor Statistics reveals that there are some sectors in construction experiencing productivity growth. The BLS compared construction output to labor input from 2007 to 2016 and found that there are four types of construction that are experiencing increased productivity.

Highway and street construction is seeing about a 0.5% increase per year in productivity. Single-family residential construction productivity is growing at 1% and multifamily construction is experiencing productivity growth of 3%. Industrial construction, which covers things like manufacturing and heavy processes, is seeing productivity gains of 5% year-over-year.

As construction wages and costs for building materials steadily increase, it’s important that construction firms continue to make improvements to productivity in order to keep construction costs down.

To see more insights and in-depth analyses from the economists, check out the full webcast here.

About Kendall Jones

Kendall Jones is the Editor in Chief at ConstructConnect. He has been writing about the construction industry for years, covering a wide range of topics from safety and technology to industry news and operating insights.