Dodge: Economic slowdown to impact construction growth

By |  November 1, 2019
Photo:

Branch

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, which offered its latest predictions in the 2020 Dodge Construction Outlook. “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.”

Public works construction

The forecast for public works construction remains positive, especially when compared to other construction segments. Photo: iStock.com/Jens_Lambert_Photography

The forecast for public works construction remains positive, especially when compared to other construction segments. Photo: iStock.com/Jens_Lambert_Photography

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.

Single-family

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

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.

Commercial construction

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.

Institutional building

In 2020, institutional construction starts will essentially remain even with the 2019 level as the influence of public dollars adds stability to the outlook. According to Dodge, education building and health facility starts should continue to see modest growth next year, offset by declines in recreation and transportation buildings.

Other areas

The dollar value of manufacturing plant construction will slip 2 percent in 2020 following an estimated decline of 29 percent in 2019. Rising trade tensions have tilted this sector to the downside with recent data, both domestic and globally, suggesting the manufacturing sector is in contraction.

Lastly, electric utilities and gas plants will drop 27 percent in 2020 following growth of 83 percent in 2019. Several large liquefied natural gas export facilities and new wind projects broke ground this year.

Kevin Yanik

About the Author:

Kevin Yanik is the editor-in-chief of Pit & Quarry magazine. Yanik can be reached at 216-706-3724 or kyanik@northcoastmedia.net.

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