Construction activity is experiencing a new, normal level

Construction activity growth is slowing down, but a new normal is being set at a healthy level. Photo: iStock.com/TerryJ

The construction industry is at a new normal.

Robert Murray, the chief economist and vice president at Dodge Data & Analytics, told attendees during the firm’s midyear update webinar that both construction starts and construction spending are expanding, but not at the same booming rate seen over the last three years.

The deceleration, Murray calls it, is carrying the construction industry into some interesting times and a new normal with a healthy level of activity.

2019 has seen a pullback, Murray says, and some estimates even point to a 10 percent decrease in activity. But these numbers can still be described as healthy when historically compared.

Strong growth between 2017-18 provided slightly skewed numbers for 2019.

Overall, while activity is leveling off and strong growth rates are disappearing, healthy construction activity remains. Despite decreasing growth rates, a survey from United States Gypsum (USG) Corp. and the U.S. Chamber of Commerce shows more than half of contractors are highly confident the market will provide new projects over the next 12 months.

The new normal

Activity may have peaked in the first quarter of 2018 and growth has subsided for now, but construction activity is still at a healthy level.

Prices on building materials and labor costs rose over the last 12 months, which could play a part in the decelerating growth rate. Although, as Murray points out, this increase in building material prices is not as much as the industry saw between 2016 and 2018.

The price of construction materials overall has gone up 1.7 percent between July 2018 and July 2019, according to the U.S. Bureau of Labor Statistics. Cement (2.6 percent), concrete products (2.8 percent) and asphalt paving (5.2 percent) all saw price increases during the same time period, as well.

There has been moderate growth in single-family housing, but multifamily housing has dipped considerably. Despite that, Murray says, these levels can still be considered healthy.

Additionally, Dodge Data & Analytics reports three multifamily projects, each valued over $600 million, are underway, and projects in Boston grew 72 percent between June 2018 and June 2019.

Positive signs

Single-family housing is seeing a slight uptick in 2019, but overall projects have decreased 3 percent year-over-year. Despite this trend, there are positive signs for the market.

Millennials, faced with the challenge of paying off student loan debt, pushed off buying a house. The times are changing, though.

This demographic is getting older, and friendly mortgage rates and a strong economy signal that millennials are approaching home buying. The one constraint, however, is slow income growth.

According to Murray, there are several economic tailwinds promoting the continued growth of the economy. Low long-term interest rates, growing employment numbers and some recent legislation at the federal level are contributing to a strong economy that should carry into 2020.

2020 expectations

Multi- and single-family housing will not see a renewed growth in the new year. In fact, Murray says, they’re more likely to see a modest decline.

Considering the current constriction activity numbers, Murray explains there aren’t many imbalances. These imbalances, which the market saw in 2008-09, would be worrisome signs.

Instead, Murray says, any construction slowdown will be pretty modest and support a stable construction picture.