Highways, bridges represent top 2019 construction opportunities

Construction is coming off some of its best years in recent memory, but the industry’s expansion has unfortunately decelerated over the last three years.

Total construction starts advanced 11 to 14 percent each year from 2012 through 2015, according to Dodge Data & Analytics. Starts continued to climb in 2016 and 2017, advancing at a 7 percent rate during each of those years.

As last year neared the finish line, Dodge Data & Analytics estimated a 3 percent increase in construction starts for 2018. The growth rate will continue to slow in 2019, as Dodge Data & Analytics expects total construction starts to be flat relative to the prior year.

“There are, of course, mounting headwinds affecting construction, namely rising interest rates and higher material costs, but for now these have been balanced by the stronger growth for the U.S. economy, some easing of bank lending standards, still healthy market fundamentals for commercial real estate, and greater state financing for school construction and enhanced federal funding for public works,” says Robert Murray, chief economist at Dodge Data & Analytics.

Reason for optimism

Although total construction starts are slipping, public works construction shows the most promise of seven segments Dodge Data & Analytics tracks. The construction industry’s intelligence provider predicts public works construction to increase 4 percent in 2019. The omnibus federal appropriations bill passed in March 2018 provided greater funding for transportation projects that will carry over into 2019, Dodge Data & Analytics says. Also, environmental-related projects are getting a lift from recently passed legislation.

“Of the various sectors within the overall construction industry, transportation/public works and specifically highways and bridges are going to make out relatively better over the next couple of years,” Murray says.

The majority of Dodge Data & Analytics’ 4 percent increase for public works construction is tied to highways and bridges.

“Of that 4 percent, the estimate is for a 3 percent increase for highways and bridges,” Murray says. “That estimate did not include the prospects for any benefit from a new infrastructure program. That was based solely on the expectation that the funding increase called for by the FAST Act and from various state bond measures would be the supportive elements.”

Lately, state bond measures have been especially huge for public works construction.

“States have been providing greater support for highway and bridge construction,” Murray says.

While a 4 percent increase in public works construction may seem modest compared with recent years, such a forecast should be welcome news considering Dodge Data & Analytics’ outlooks for segments like single-family housing, multi-family housing and commercial building.

“We have single-family housing flat in terms of dollars,” Murray says. “We have multifamily down 6 percent in dollar terms. Commercial building is down 3 percent.”

Public works construction will get an added boost if Congress and the Trump administration can come to terms on some additional form of infrastructure investment, Murray adds.

“There has been some talk of an infrastructure bill providing $500 billion for highway and transit,” he says. “This would be, I assume, in addition to essentially coming up with the next five- to six-year transportation legislation.”