Five-year aggregate forecast

By |  May 16, 2018
Photo by Joe McCarthy

As expected, the nonbuilding sector should provide the biggest near-term boost to aggregate demand in the coming years. Photo by Joe McCarthy

Conditions remain favorable for construction materials. We have projected out five years to give you an idea of our longer-range thinking. Basically, we see solid growth for the next five years. But there are, of course, headwinds we will discuss. For now, let’s look at the reasons for the positive outlook.

First, corporate profits remain on an upward trajectory and capital investment plans are strong. These two factors provide most of the boost in construction spending, albeit in an indirect way. They are the foundation for better construction growth.

Because of these two factors, personal incomes will grow faster, productivity will grow faster and GDP will grow faster. There are more subtle factors such as fewer regulations and more energy development that will also help growth improve.


Because this expansion has gone on for so long – seven-plus years now – we must be cautious. Growth rarely continues uninterrupted for more than eight years.

Some areas of concern are international events, including trade wars and terror-supporting nation-states. Another condition that grows each day, much like pressure on the San Andreas Fault line, is debt. We will add about $1 trillion to the national debt this year. That is extremely unusual when the economy has been growing for several years.

But, like an active earthquake fault, we can’t determine with any accuracy when it will become a serious, immediate problem. Someday, we will all talk about the debt bomb.

Sectors to watch

As the chart shows, we expect the biggest near-term boost for construction materials to come from nonbuilding – more specifically, state and local nonbuilding. After years of growing tax receipts, many regions are making plans to spend more on infrastructure, including Arizona, California, Florida, Tennessee, Texas and Washington. Any infrastructure plan from the federal government will be a bonus to this growing demand, but is not needed for our forecast.

Click to enlarge.

Residential will remain flat, even though it has good fundamentals, due to high home prices and a lack of sufficient down-payment funds.

Nonresidential will also remain flat with higher warehousing, office and manufacturing activity being offset by lower retail activity.

However, in the out years, both residential and nonresidential will begin to improve as the negatives lessen. In total, output will increase in the 2 to 11 percent per-year range for most of the next five years.

Segment specifics

In its 2018 Dodge Construction Outlook, Dodge Data & Analytics predicts total U.S. construction starts for this year to climb 3 percent to $765 billion.

“The U.S. construction industry has moved into a mature stage of expansion,” says Robert Murray, chief economist for Dodge Data & Analytics. “After rising 11 percent to 13 percent per year from 2012 through 2015, total construction starts advanced a more subdued 5 percent in 2016.”

Murray says an important question entering 2017 was whether the construction industry had the potential for further expansion.

“Several project types, including multifamily housing and hotels, have pulled back from their 2016 levels, but [2017] has seen continued growth by single-family housing, office buildings and warehouses,” Murray continues. “In addition, the institutional segment of nonresidential building has been quite strong, led especially by transportation terminal projects in combination with gains for schools and healthcare facilities. As for public works, the specifics of a $1 trillion infrastructure program by the Trump administration have yet to materialize, so activity continues to hover around basically the plateau for construction starts reached a couple of years ago.”

According to Murray, total construction starts in 2017 were estimated to climb 4 percent to $746 billion.

“For 2018, there are several positive factors which suggest that the construction expansion has further room to proceed,” Murray says. “The U.S. economy next year is anticipated to see moderate job growth. Long-term interest rates may see some upward movement, but not substantially. While market fundamentals for commercial real estate won’t be quite as strong as this year, funding support for construction will continue to come from state and local bond measures.”

Overall, Murray notes 2018 is likely to show some construction project types register gains while other project types settle back, with the end result being a 3 percent increase from total construction starts. Major section gains are predicted for residential building, up to 4 percent. Nonresidential building will be up 2 percent while nonbuilding construction is expected to stabilize after two years of decline.

According to Dodge, single-family housing will rise 9 percent in dollars, corresponding to a 7 percent increase in units to 850,000. Continued employment growth has eased some of the caution shown by potential homebuyers, while millennials in their 30s are helping to lift demand for single-family housing. A modest boost will also come from rebuilding efforts in Texas and Florida after Hurricanes Harvey and Irma.

Multifamily housing will retreat 8 percent in dollars and 11 percent in units, according to Dodge. This project type appears to have peaked in 2016, helped by widespread growth across major metropolitan markets. That strength began to wane in 2017, given slight deterioration in market fundamentals (i.e., rent growth, occupancies) and a more cautious bank lending stance.

Other predictions

Dodge predicts commercial building will increase 2 percent, following a 3 percent gain in 2017, and will continue to decelerate after the sharp 21 percent hike back in 2016. Office construction should see further growth in 2018, helped by broad development efforts in downtown markets, and warehouse construction is supported by greater demand arising from e-commerce. However, store construction will remain weak, and hotel construction will continue to pull back from its 2016 peak.

Institutional building will advance 3 percent, maintaining its upward track after this year’s 14 percent jump, according to Dodge. Educational facilities should see more substantial growth next year, lifted by the passage of recent school construction bond measures. The robust volume of transportation terminal projects in 2017 may not be repeated in 2018, but activity should stay at a high level.

Manufacturing plant construction will recede 1 percent, in dollar terms, after surging 27 percent this year due to the start of several massive petrochemical projects, says Dodge. 2018 should still see moderate growth for manufacturing plants in square footage terms.

Public works construction will improve 3 percent, slightly more than the 1 percent growth in 2017. Highways and bridges should be helped as federal funding rises to the levels called for by the FAST Act, while the environmental categories will partly reflect reconstruction efforts related to Hurricanes Harvey and Irma. Additional benefits may come from an infrastructure program.

David Chereb has many years of experience forecasting construction materials, and his web-based forecasting models have captured every major turning point in materials demand for more than 15 years. Chereb received his Ph.D. in economics from the University of Southern California. He can be reached at

Comments are closed