Concrete Products

DEC 2018

Concrete Products covers the issues that attract producers of ready mixed and manufactured concrete focusing on equipment and material technology, market development and management topics.

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Page 45 of 83

44 • December 2018 FEATURE MARKET OUTLOOK Lead economists in the construction industry project continued modest growth in 2019, but caution that rising interest rates among other factors will threaten overall growth in the long term. "Despite month-to-month fluctuations, the outlook remains positive for modest to moderate increases in most [construction] spending cat- egories at least through the first part of 2019. However, damaging trade policies, labor shortages and rising interest rates pose growing challenges to contractors and their clients," says Ken Simonson, chief economist for Associated General Contractors of America. Total U.S. construction starts are projected to reach $808 billion, essentially even with the $807 billion estimated for 2018, according to the 2019 Dodge Construction Outlook. By major sector in dollar terms, residential building will be down 2 percent, nonresidential building will match its 2018 amount, and non-building construction will increase 3 percent. "Over the past three years, the expansion for the U.S. construc- tion industry has shown deceleration in its rate of growth, a pattern that typically takes place as an expansion matures," Dodge Data & Analytics Chief Economist Robert Murray told attendees of the 80th annual Outlook Executive Conference in National Harbor, Md. "After advancing 11 percent to 14 percent each year from 2012 through 2015, total construction starts climbed 7 percent in both 2016 and 2017, and a 3 percent increase is estimated for 2018. "There are mounting headwinds affecting construction, namely rising interest rates and higher material costs, but for now these have been balanced by the stronger growth for the U.S. economy, some easing of bank lending standards, still healthy market fundamentals for commercial real estate, and greater state financing for school construction and enhanced federal funding for public works." "An important question going into 2019 is whether deceleration is followed by a period of high level stability or a period of decline," Murray observed. "For 2019, it's expected that growth for the U.S. economy won't be quite as strong as what's taking place in 2018, as the benefits of tax cuts begin to wane. Short term interest rates will rise, as the Federal Reserve continues to move monetary policy towards a more neutral stance. Long-term interest rates will also rise, reflecting higher inflationary expectations by the financial markets. At the same time, any erosion in market fundamentals for commercial real estate will stay modest. In addition, the greater funding from state and local bond measures passed in recent years will still be present, and it's likely that federal spending for con- struction programs will increase once all the federal appropriations bills for fiscal 2019 are finalized. In this environment, it's forecast that growth for construction starts will decelerate further, but not yet make the transition to the point where the overall volume of activity declines." Among key segments measured in year-over-year terms, the 2019 Dodge Construction Outlook predicts construction starts for single-family housing to be 815,000, down 3 percent; multifamily housing, 465,000, down 8 percent; and, commercial building, down 3 percent. On a positive note, institutional building, manufacturing plant construction and public works construction will see positive gains of 3 percent, 2 percent and 4 percent, respectively. The slight decline in homebuyer demand, notes the Dodge fore- cast, is the result of higher mortgage rates, diminished affordability, and reduced tax advantages for home ownership from tax reform. In fact, sales of newly built, single-family homes fell to a seasonally adjusted annual rate of 544,000 units in October—the lowest sales pace since December 2016—according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. "This decrease in single-family starts isn't a surprise given the drop in our builder confidence index," says National Association of Home Builders Chairman Randy Noel, a custom home builder from LaPlace, La. "Builders are showing caution as mounting housing affordability concerns are forcing some consumers to delay making a home purchase." "Single-family starts were strong at the beginning of the year, but weakened this summer and have remained soft," adds NAHB Chief Economist Robert Dietz. "Despite this softness, 2018 construc- tion volume is set to be the best since the downturn. A growing economy and positive demographic tailwinds are supporting housing demand as interest rates rise. However, policymakers should take note of the November decline in builder confidence as a sign that housing affordability conditions will weigh on the housing market going forward." Slowing Down Mounting headwinds threaten to undermine construction growth Continued on page 46 Dodge forecasts single-family home starts sliding 3 percent.

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