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Economist suggests “wait-and-see” approach to construction market

Source: Associated Builders and Contractors, Washington, D.C.

ABC Chief Economist Anirban Basu forecasts continued momentum for construction next year, mindful that a “heightened level of uncertainty could induce many economic actors to adopt a wait-and-see attitude, further reducing economic activity in the context of an already rapidly softening global economic environment.”

Although ABC’s Construction Backlog Indicator—a leading metric that reflects projects under contract yet to be executed—climbed to nine months in August 2019, the lagging indicators of construction spending and employment have started to soften. While spending in private nonresidential categories such as office and logging have decreased, public construction remains a bright spot. 

“Indeed, one of the sources of strength for the U.S. economy over the last year has been a pickup in infrastructure spending,” says Basu. “While the federal government has yet to fashion a full-fledged infrastructure plan for the nation and the Highway Trust Fund is set for insolvency by 2021 absent congressional action, infrastructure-related outlays remain a good news story. So far, state and local governments have come to the rescue, supported by rising collections of income, sales and property taxes. Several key construction segments have benefitted as a result, including water/sewer, transportation and highway/street.”

Such outlays pushed the CBI infrastructure segment to 10.4 months of backlog as of August 2019, significantly higher than the commercial and institutional and heavy industrial segments. Basu also flags the ongoing workforce shortage as a significant factor that will continue to affect the construction sector next year, even as job growth slows. According to ABC’s August Construction Confidence Index, 59.3 percent of contractors intended to expand their staffing levels in the second half of 2019, which necessitates additional education for new hires and rising wages for experienced workers that can drive up the costs for overall construction services.