Improved economic outlook provides optimism

By |  October 18, 2019

The outlook is unchanged from last month, but the momentum is shifting to the upside. Solid consumer spending, strong energy production, easier monetary policy and improved trade potential are increasing the potential for higher economic growth over the next two years.

This stronger economic outlook is far different than just three months ago, when all the headwinds seemed to be getting stronger. To turn the more favorable outlook into higher construction spending will require a continuation of strong business profits and improved personal income growth.

While the nonresidential segment will remain at a high plateau, both residential and nonbuilding will get stronger over the next 24 months. For residential, very low mortgage rates and flat home prices will move more potential buyers into actual buyers. Public works (i.e., nonbuilding) will keep growing at solid rates. Most of the gains will come from higher state and local spending with modest new support from the federal level.

Beyond 2021, federal support should provide some extra funds with the renewal of some sort of new FAST Act. Regionally, strong growth in the Southeast will continue with the migration from north to south picking up speed due to business relocations and more high-profile individuals moving.

The energy states will also do well, with energy prices remaining high enough to sustain higher levels of production. Energy exports will make up for any slowing of domestic use.

While California has done extremely well during the last four years, it will slow as its high costs and higher regulatory burdens drive people and companies away. Nevada, Arizona and Texas will be the main destinations.

On balance, the default outlook is for continued growth in aggregate demand and solid gains in pricing.

Dr. 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.

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