Home > Library > State of the Construction Industry 2015

State of the Construction Industry 2015

The value of all construction work done in the U.S. last year reached the highest level recorded by the Census Bureau since 2008, when contractors spent more than $1 trillion to build new structures and renovate existing ones.

Although $961 billion falls well short of $1.2 trillion — the cost of work done in 2006, the peak of U.S. construction spending — the 2014 estimate demonstrates a noticeable improvement (5.6 percent) over 2013 and a substantial upturn (22 percent) from 2011, when the value of all U.S. construction put in place plummeted to $788 billion.          

“For the first time in nearly a decade, there was growth in all three major segments — public, private nonresidential and residential,” said Ken Simonson, chief economist for the Associated General Contractors of America (AGC).

Increased building activity in both private and public sectors prompted U.S. construction employers to add 39,000 jobs in January 2015 and 308,000 over the past year, according to the Bureau of Labor Statistics, the highest employment total since February 2009 as the industry continues its recovery following the recession.

Private construction climbed 7.2 percent in 2014 and powered the bulk of acceleration in spending. Multifamily residential (34 percent) and offices (24 percent) posted the largest gains for the year, followed by lodging (18 percent), which has benefited greatly from the economic rebound and hit a five-year high for hotel construction, according to a report by industry consultant Lodging Econometrics.

“Because of the industry’s favorable metrics, lenders are increasingly more attracted to hotel investment, making funds easier to access by developers,” the company said in its Construction Pipeline Trend Report.

Commercial building rebounds to pace growth 

The American Institute of Architects (AIA) projects that spending on the construction of nonresidential buildings will rise 7.7 percent in 2015 based on its semiannual survey of the nation’s leading construction forecasters. Hampered by weather-related delays during the first part of 2014, the commercial market improved dramatically throughout the rest of the year and finished with greater-than-anticipated spending levels.

“This is the first time since the Great Recession that every major building category is projected to see increases in spending,” said Kermit Baker, AIA chief economist. “But by far, the most significant driver that will fuel greater expansion in the marketplace is the revival in the institutional sector, especially with growing demand for new health care and education facilities, which alone traditionally account for a third of spending on new building construction.”

AIA expects education and health care facility construction each to climb 4.7 percent in 2015 after making positive strides last year. The association predicts hotel construction will pace overall nonresidential building and jump more than 15 percent during the same time frame, followed by office buildings at 12.9 percent, industrial facilities at 10.5 percent and retail at 10.1 percent.  

The AIA Architectural Billings Index (ABI), an economic indicator that provides a look into the future of nonresidential construction spending activity, showed increases in the demand for design services in 10 out of 12 months last year. AIA reported the ABI score for December 2014 rose to 52.2 from a mark of 50.9 in November (any score above 50 indicates an increase in billings).

“Business conditions continue to be strongest at architecture firms in the South and the Western regions,” Baker said. “Particularly encouraging is the continued solid upturn in design activity at institutional firms, since public sector facilities were the last nonresidential building project type to recover from the downturn.”

Contractors benefit from better financial positions 

As business conditions improve, the availability of credit appears to be less of a concern for contractors in 2015 than during the height of the economic downturn. Only 7 percent of construction firms report having difficulty in getting bank loans this year, while just 24 percent say their customers’ projects are being delayed or canceled because of tight credit conditions, according to AGC survey results from more than 900 construction firms in 48 states and Washington, D.C.

More affordable building materials should ease input costs for contractors in 2015 and free up additional funds. Prices of construction materials dipped 1.4 percent in the final month of 2014, the sharpest decline since late 2008 amid the global financial crisis, and they remain down almost 1 percent year-over-year, according to the latest Producer Price Index from the U.S. Department of Labor.

“Without question, financial markets have been unnerved by the recent declines in oil, copper and other commodity prices, although that jitteriness does not necessarily imply a serious economic problem in America,” said Anirban Basu, chief economist for Associated Builders and Contractors (ABC). “Note that concrete prices are up by 5 percent on a year-over-year basis, while natural gas prices are up by 10 percent.”

Labor gains generate optimism for additional growth

Construction firms added jobs in 40 states and Washington, D.C., during 2014, as overall employment in the industry expands at more than twice the rate for total nonfarm payroll jobs, AGC noted in a January 2015 analysis of Labor Department data. 

The association reported 80 percent of firms it polled said they plan to hire employees in 2015, and that contractors foresee growing demand in most market segments, according to the results of AGC’s survey, “Ready to Hire Again: The 2015 Construction Industry Hiring and Business Outlook.” 

“Contractors are extremely optimistic about the outlook for 2015,” said Stephen E. Sandherr, CEO of AGC. “Indeed, if their predictions prove true, industry employment could expand this year by the most in a decade.”

Although just 7 percent of construction companies polled by AGC expect to reduce their payrolls in 2015, 90 percent of the firms that intend to increase head counts this year said the growth would be only one-quarter or less. But after a mere 57 percent of businesses AGC surveyed reported that they actually added jobs in 2014, any kind of boost would represent meaningful progress.

“Despite the overall optimism, some challenges remain for the industry,” Simonson said. “In particular, as construction firms continue to expand, they will continue to have a difficult time finding enough skilled construction workers.”

Workforce development depends on individual prowess

Among companies trying to add new employees, 87 percent reported having difficulty filling key professional and craft worker positions, according to AGC. More specifically, 76 percent of firms looking to hire said they had trouble finding qualified craft workers, while 62 percent reported the same complaint about professional positions such as project managers, supervisors and estimators.

“While construction firm executives have been worried for years about the specter of construction skills shortages, the [Bureau of Labor Statistics] data indicate there are plenty of people looking for jobs in construction,” said ABC’s Basu. “It is likely that many of these prospective workers lack the skills necessary to fill the openings construction firms are seeking to fill or live in areas where construction employment growth is much slower.”

As the supply of qualified construction workers tightens, compensation levels appear to be climbing, AGC’s Simonson said. The association discovered 51 percent of firms have increased their base pay rates to retain construction professionals, while 46 percent have done the same to keep skilled craft workers. A quarter of the companies polled by AGC said they have improved their benefits packages to retain construction professionals, and 1 in 5 reported doing the same to keep craft workers.

Single-family housing production poised for takeoff

Nationwide housing starts rose 4.4 percent in December 2014 from a month earlier to an annual rate of 1.089 million, according to the U.S. Census Bureau and the Department of Housing and Urban Development. Contractors started an estimated 1.006 million housing units for the year, an 8.8 percent increase from 924,900 in 2013.

“With overall starts ending the year above 1 million units for the first time since 2007, we expect this momentum to carry forward in 2015,” said David Crowe, chief economist for the National Association of Home Builders (NAHB). “A growing labor market and strengthening economy will spur steady growth in single-family housing production in the year ahead.”

Single-family starts jumped 7.2 percent in December to a seasonally adjusted annual rate of 728,000 units, while multifamily starts edged down 1 percent from the previous month to 361,000. NAHB projects single-family production to surge 26 percent to 804,000 units in 2015 and anticipates multifamily to gain 2 percent to 358,000 units.      

“Given the job growth we’ve seen in 2014, there should have been better household formations,” said David Berson, chief economist for Nationwide Insurance, at the International Builders’ Show (IBS) in Las Vegas.

Berson noted the real slowdown in household formations could be attributed for the most part to Millennials, who have suffered disproportionately from stagnant wage growth and student debt; however, Berson pointed out that this key demographic is getting older and might be ready to set down roots. 

“The leading edge are now in their young 30s,” he said. “Homeownership desire is much higher for those who are in their 30s than those in their 20s.”

Multifamily to soften as home remodeling picks up   

Demand for multifamily housing has been strong in recent years because many people cannot afford to live on their own. The number of multifamily apartments forecast to be built in the near future should reach a sustainable level higher than degrees of production in the past, said NAHB panelists at IBS.

“The industry has shown dramatic increases in construction since the recession, but the level of increase will moderate as we approach equilibrium,” Crowe said.

Decreasing vacancy rates, furthermore, have pushed up rents and might encourage more people to move out on their own. Rental fees rose 3.6 percent in 2014, and vacancy rates finished the year at 4.2 percent, near the lowest level since 2001, according to Reis, a commercial real estate market information and analysis firm.

Economic growth near 4 percent for the second half of 2014 and employment gains of 250,000 per month last year helped restore consumer confidence back to pre-recession levels, Crowe said, and indicate a robust year for single-family housing production in 2015. NAHB expects sales of new single-family homes to hit 564,000 this year, which would be a 29.3 percent upswing from 2014.

“Household balance sheets are returning to normal levels, homeowners’ equity is increasing and significant pent-up demand is rising,” Crowe said. “More than 7 million existing home sales were postponed or lost during the downturn, and while some are lost forever, we should see some catch up.”

As a result, NAHB projects residential remodeling activity to gain 3 percent in 2015 and another 1.5 percent in 2016 after falling 5.4 percent last year. 

“Existing home sales and house prices both hit soft spots in 2014 that dealt a glancing blow to residential remodeling businesses,” said Paul Emrath, NAHB vice president for survey and housing policy research. “We expect those drags are behind us in 2015, an outlook consistent with the optimism expressed by remodeler members in our recent Remodeling Market Index (RMI) survey.”

The RMI, a quarterly survey of professional remodelers that asks whether conditions have gotten better or worse, hit a record-high result of 60 in the fourth quarter of 2014. An RMI score above 50 indicates that more remodelers report market activity is higher (compared with the previous quarter) than report it is lower. 

The overall RMI averages ratings of current remodeling activity with indicators of future remodeling activity. Both current remodeling activity and the indicators of future activity registered a score of 60 in the fourth quarter of 2014.

“Remodelers are responding to calls from homeowners on steadier financial footing than recent years,” said 2015 NAHB Remodelers chairman Robert Criner, a remodeler from Newport News, Virginia.


Be sure to join the Lowe’s ProServices LinkedIn Group to read additional content and interact with other Construction/Trade and MRO professionals.

Related articles:  ArticleAssociationsBusiness AdviceBusiness OwnersBusiness PropertiesCommercial FacilitiesConstructioncontractorHotelsIndustry TrendsProperty ManagementRemodelsResidential PropertiesSchools
Your Recently Viewed Items
You have no recently viewed items. After viewing product detail pages or search results, look here to find an easy way to navigate back to products you are interested in.
Your Recommended Items

You currently have no recommended items. Browse a few more items to give us an idea of what you like.
Server: WWW85 Created On: 10/28/2016 10:42:42 AM