By this time every year a multitude of economists have offered their opinion of what the year should bring. Even the economists will agree that their opinions are as weak as anyone else’s. We and they do not have magic glasses allowing unclouded vision of the future. But after listening to the voices of dozens of economists, there are trends and indicators that give decent hints.
Overall the majority say the economy has been growing, although at a lackluster pace. They agree it will continue to grow for the next few years. Without an unforeseen major economic or political event we will see a little more construction activity this year than last.
Once again the experts predict a 2.5 to 3.5% growth rate for the U.S. economy. The commonly held belief is a risk exists with the continued weakness in household formation. New single home construction will not grow substantially until more young people begin to buy houses.
Here’s a little more information taken from the various economists reports as of late;
Commercial Construction
Consumers have been buying more, taking trips, and engaging in more entertainment. Consumer spending has driven the increases we see in manufacturing, warehousing, and professional services. Those increases have driven an expanding commercial construction sector.
And expansion is expected to happen once again. Office building, hotels, entertainment facilities, office building, and warehouses all show good sign for growth.
The regions with the strongest growth are those tied to any part of the energy market. U.S. energy production is still enjoying success and growth.
Private development has overtaken public. Partially because governments have slowed their spending, but there is a real growth in private investment. Companies that held off on development plans when the recession hit are now pulling the trigger and moving forward.
Residential Construction
The big growth in the residential arena has been multi-family. Reasons stated are young people want to maintain flexibility so they can quickly move to take a better job. They are saddled with education debt and cannot meet the requirements to get much of a mortgage. Wages are stagnate. And cultural factors, such as young people wanting to live downtown instead of the suburbs, play a factor too.
Mortgage requirements cannot be downplayed. Many young people are in debt from college, automobiles, or other spending. Meeting the down payment requirements and debt to equity ratios is proving difficult for many. Without more higher paying jobs and wage growth, these folks will not be able to buy a home anytime soon. Both the jobs and wage growth have been painfully slow the past 6 years. Â Middle class wages are still 8% lower than pre-recession.
While this generation of young people may appear behind the life plan of their parents, they are redefining their own generational markers of success. Often missing from their list is the suburban home. As is getting married and having children. It is unclear what they will hold important a few years from now. Optimistically and I think very likely, it could be that pent up demand will fuel nice home building numbers for many years to come. We saw the same with the Great Depression generation.
Employment
The construction trades took a super hard hit with the recession. Many left our industry and few young people have entered. For now and in the future finding good people will be a problem. But this was a problem even before the recession. The landscape trades have not been an attractive career choice, so it was hard to get young people interested.
Staffing is an issue we’ve been fighting and that will not change. Crew leaders, middle managers, project managers, and sales will be the hardest to fill.
Raw Materials
The sluggish global economy, stronger Dollar, and failing oil prices have minimized any significant gain in raw material prices. Green Industry manufacturers have raised prices the past couple years attempting to boost sagging profits leftover from the recession. Presently there are no external drivers to cause a rise in raw material costs, so a year of stable prices is expected.
Oil would likely be the wildcard. Strife in oil producing countries might cause a rapid increase. So many products we use are derivatives of oil. Plastics, fertilizer, and fuel affect our industry the most. Right now looks like what we see is what we’ll have.
