1. Increases in Employment
The Associated General Contractors of America’s (AGC) members report increased construction project hiring whose headcount includes general contractors, service providers and skilled tradesmen. The association’s report on construction’s 2016 hiring outlook states that a mix of private and public sector market segments will drive increased demand for construction services in 2016. While this net positive reading will be offset somewhat by possible workforce shortages, increased governmental regulations and rising healthcare costs, the overall outlook remains optimistic.
The sectors where the greatest number of construction starts are occurring are retail, warehouse, and lodging, (projected 21% increase), followed by hospital (with a 19% net), private office (19% net), multi-family residential (14% net), and higher education construction starts (13% net). As a result, 71% of construction firms say they will increase their headcount in 2016. Over 63% of AGC members report that they will increase their staffs in 2016 by up to 25%.
During the past 12 months, the industry has added more than 200,000 positions, making it one of the best performing sectors in the U.S. economy. Currently, the unemployment rate for the construction industry stands at its lowest point in the past eight years. For all concerned, this may represent the brightest and most promising economic marker in this sector.
2. Increase in Private Non-Residential Spending
The Associated Builders and Contractors (ABC) has forecasted continued growth in the non-residential construction spending in 2016. This is based on net increases in recent years when the private non-residential sector experienced a total increase from $347,666 to $384,385 between all industries from 2014 to 2015. With the projected amount to be spent at $418,134, top economists are looking at a total 7.4% increase by the end of the year 2016.
Another indicator is consumer spending. To the extent that the economy is performing, it is demonstrating improvement in interest rate-sensitive areas. Despite soft wage growth, consumers continue to lead the way, spending more on restaurants, automobiles, electronics and lodging. Low interest rates are back to pre-recession levels or better and these represent an incentive for consumers to buy. For example, low rates have been particularly effective with respect to influencing the purchase of new cars.
3. Increase in Public Non-Residential Spending
Signs of life are appearing in certain public-financed segments. Roadway construction increased by 10% during the past year. Part of this work was brought about due to a need to address previously deferred maintenance. The Environmental Protection Agency (EPA) mandates and repairwork pushed sewage/waste disposal construction up 12.9 percent during the last 12 months and water supply-related construction up 5.6 percent. Education-related construction spending rose by 12%.
Many of these projects were carried out in public schools where the projects ranged from upgraded science labs, and improved infrastructures such as leak-proof roofs, see-through windows, and more efficient energy use. Overall spending increased from $270,644 to $281,143 in the public nonresidential sector between 2014 and 2015. That significant increase is only the beginning, according to experts, suggesting a 5.5% increase to $296,676 for 2016.
4. Increase in New Construction Starts
Residential construction continues to represent another important economic driver. Both multifamily and single-family segments are showing continued signs of recovery. Borrowing costs are low for developers and purchasers alike, which helps to fuel an uptick of spending on housing.
According to Dodge Data & Analytics, new construction will grow 6% to $172 Billion in 2016. This is based on indices from the last two quarters of 2015 where U.S. housing starts expanded to a near eight-year high last July. Through that month, housing starts had exceeded a one-million-unit pace for four consecutive months.
Also of note, single-family construction had been at the core of residential recovery last year. In July, groundbreaking for single-family homes surged by nearly 13 percent to an annualized pace of 782,000 units—the highest level since December 2007, which was the initial month of the Great Recession.
5. Green Building Will Continue to Grow
Kermit the Frog was wrong, it is becoming increasingly easier and more economically feasible to be green. Green building currently accounts for 26-33% of the total residential market, alone. The trend toward green building and remodeling is consumer driven. While green building comes at a higher cost, its health benefits and impact on the environmental footprint are believed to offset the average additional 5% increased spend. According to 69% of builders and 78% of remodelers from Dodge Data & Analytics, customers will pay more for green in the following years.
This is due to a proposed shift in demographics. Currently the drive for using sustainable building materials is favored by consumers over age 60. The metric is expected to shift as baby boomers age beyond home ownership and millennials mature into becoming first time homeowners with a greater appreciation for green building products.
Construction project demand is up across private and public sectors. With these upticks construction trade employment has also increased. The sole detriment is the perceived shortage of skilled tradesmen across some specialties. Consumer spending and additional interest in the use of green or sustainable building products is projected to increase contractor net profits. While it is not likely that these increases will return construction industry activity and revenues to pre-Recession levels, they are projected to come close.