According to JLL Research, U.S. construction spending hit nearly $1.2 trillion in 2016, an increase of 4.5% over 2015. With that good news, here's a quick-hitting look at the key factors driving the economic outlook for construction in 2017.
The new administration's policies should be in place by mid-2017 but won't be felt until late 2017 and into 2018.
With international trade deals dropped and new import tariffs expected, materials costs could rise substantially. Any increased restrictions on immigration will also be felt in the labor supply. Plus, any large infrastructure projects would drive material and labor costs higher.
We'll all wait to see the actual impact of Washington's fractious political climate, but it is hard to predict, as you're aware.
The South and Midwest regions are expected to continue to see growth. But the Northeast and West slowed in 2016, and that is expected to continue.
The national construction cost index (developed from the costs of labor, material, and equipment) rose 2.5% in 2016 over 2015. The highest growth in costs happened in Oakland and San Francisco.
The U.S. Census Bureau's construction spending put-in-place investment predictions estimate that total residential construction will increase by 6.3% in 2017 and another 7.2% in 2018. Among other segments, lodging, office, and healthcare are all expected to top 12% in 2017. The big loser in 2017 is expected to be industrial/manufacturing, down by 7.2%.
Skilled labor remains in high demand, which will drive wages higher in 2017 to attract and keep qualified employees. Immigration restrictions will naturally put pressure on the labor supply. As the overall economy improves, many employees will be attracted to other sectors, moving them out of construction.
The U.S. Bureau of Labor Statistics reported that February 2017 was the best month for job creation in construction since March 2007, up by 58,000 new jobs. They further reported that the 98,000 new jobs created in the first two months of 2017 matched the first nine months of 2016. So the jobs are there, but finding people to fill them is a growing challenge.
Building materials costs are expected to continue to rise through 2017. In fourth-quarter 2016, cement was down 2.8%, steel up 0.1%, and lumber up 1.9% on a quarter-over-quarter basis. On a year-over-year basis, cement was down 4.7%, steel up 0.5%, and lumber up a significant 9.4%.
Here again, changing U.S. policies are driving uncertainty around lumber. With Canadian supplies under threat from any NAFTA changes coupled with increasing demand, the price can only increase.
The Federal Reserve raised interest rates by 0.25% in March, with rates expected to increase later in 2017. This isn't expected to impact the construction industry until later in 2017 and 2018.
As you can imagine, with rising labor and materials costs, profit margins will be challenging to maintain. Plus, depending on your industry segment and regional area, you could either be experiencing significant growth or be challenged to find your next project.
For more insight, download our datasheet "The State of Construction in the U.S." below.
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