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FMI Construction Outlook

Last month, FMI released its Q2-2013 Construction Outlook Report. The strength of individual markets is shifting, reducing annual construction put-in-place predictions to $913 billion, a 7 percent growth from 2012. This is down nearly $6 billion from the $918,897 million, 8 percent growth estimated in the Q1’s Outlook. However, FMI does expect growth to return to 8% growth in 2014 with annual CPIP reaching $989 billion.

The major markets adjusted downward with lower expected growth are:

Commercial construction (-0.8 percent)—The current forecast calls for about a 1 percent drop in commercial construction from the Q1 forecast. However, this still represents a modest increase of 6 percent, to $49.8 billion for 2013. One of the contributing factors is sales for retail and food service businesses are slower than initially anticipated.
Health care (-3.15 percent)—Contributing factors for the decrease include hospital beds per 1,000 people trending downward and shorter patient stays.
Amusement and recreation (-2.0 percent)—Given the belt-tightening attitude across the country right now, it will likely be much more difficult to get funding from taxes and municipalities to build new stadiums in the near future.
Sewage and water disposal (-3.8 percent)—Construction for sewage and waste disposal was off 2 percent in 2012. FMI forecasts another 2 percent drop in 2013. The ability to fund necessary water infrastructure improvements is central to the decline as many municipal water systems still depend on the tax base for funding.
Water supply (-3.2 percent)—Construction for water supply projects will drop 1 percent in 2013 after dropping 7 percent in 2012. On the bright side, in March the Senate Environmental and Public Works Committee unanimously approved a Water Resources Development Act, including a measure to create the Water Infrastructure Finance and Innovation Act. WIFIA would provide $50 million per year from 2014 to 2018 to help fund large-scale water infrastructure projects.
Residential construction (-1.8 percent)—FMI continues to forecast a 23 percent increase in construction put in place for single family housing. However, multifamily housing has dropped from a strong increase of 42 percent in 2012 to a current 31 percent increase for 2013.

While there is no singular reason for the drop in these markets—each is evaluated on its own criteria—following are a few economic concerns that touch all of them:

  • the decline in public construction;
  • expectations of more cuts as the sequestration continues;
  • tight lending criteria; and
  • consumers cautious about increasing their debt load.

This economic climate will keep the heat on A/E/C industry competition, especially if companies that make their livelihood in government construction start looking for work in the already competitive private sectors.

The Q2-2013 Construction Outlook Report details CPIP in three residential building, 11 nonresidential building and five non-building structure categories.