Dodge: Economic slowdown to impact construction growth

In its 2020 Dodge Construction Outlook, Dodge Data & Analytics predicts total U.S. construction starts will slip to $776 billion in the new year.

That’s a decline of 4 percent from the 2019 estimated level of activity.

“The recovery in construction starts that began during 2010 in the aftermath of the Great Recession is coming to an end,” says Richard Branch, chief economist for Dodge Data & Analytics. “Easing economic growth driven by mounting trade tensions and lack of skilled labor will lead to a broad based, but orderly pullback in construction starts in 2020.”

After increasing 3 percent in 2018, construction starts dipped an estimated 1 percent in 2019 and will fall 4 percent in 2020, according to Branch.

“Next year, however, will not be a repeat of what the construction industry endured during the Great Recession,” he says. “Economic growth is slowing but is not anticipated to contract next year. Construction starts, therefore, will decline but the level of activity will remain close to recent highs.

“By major construction sector, the dollar value of starts for residential buildings will be down 6 percent, while starts for both nonresidential buildings and nonbuilding construction will drop 3 percent,” Branch adds.

Fortunately, one outlier in the equation is public works construction, which Dodge expects to move 4 percent higher in 2020, with growth continuing across all project types. By and large, recent federal appropriations have kept funding for public works construction either steady or slightly higher – translating into continued growth in environmental and transportation infrastructure starts.

Other segments Dodge tracks are expected to be down, though. For example, the dollar value of single-family housing starts will be down 3 percent in 2020, and the number of units will also lose 5 percent. Affordability issues and the tight supply of entry-level homes have kept demand for homes muted and buyers on the sidelines.

Multifamily construction is expected to be down, as well. Multifamily vacancy rates have moved sideways over the past year, suggesting that slower economic growth will weigh on the market in 2020. Multifamily starts are slated to drop 13 percent in dollars and 15 percent in units.

Meanwhile, the dollar value of commercial building starts will retreat 6 percent in 2020, according to Dodge. The steepest declines will occur in commercial warehouses and hotels, while the decline in office construction will be cushioned by high-value data center construction. Retail activity will also fall in 2020, a continuation of a trend brought about by systemic changes in the industry.

Information courtesy of Dodge Data & Analytics.