Wall Street's Signs for the Construction Industry in 2018
Is wage inflation an under appreciated risk?
Wall Street analysts offered a broad scope of engineering and construction market trends for 2018, based on new research and recent reports gleaned from public company executives.
Brent Thielman, senior vice president and senior research analyst at D.A. Davidson, on Nov. 15 said the October results of its monthly survey of U.S. transportation-department bids in 43 states show that the $42-billion bid value total, representing about 14,300 projects, rose 21% from the same month in 2016.
The October result is the largest trailing 12-month improvement since March 2015, he noted. Thielman points to results in nine large and small states that “suggest some broadening in new transportation project work.”
Related to Robert W. Baird & Co.’s Nov. 9 investor conference, Andrew Wittmann, its senior research analyst, said, “Global growth momentum should continue and accelerate across most sectors into 2018.”
The meeting was attended by executives from the E&C and key industrial sectors. “Several E&Cs are now more explicitly calling for a recovery in commodity markets, particularly mining but also oil and gas,” said Wittmann.
But he also noted signs of inflation “across various areas of the building-materials supply chain,”affecting commodities, labor and freight. “We view wage inflation as an under appreciated potential risk into 2018 with tightening labor markets,” Wittmann added.
Jamie Cook, lead sector analyst at Credit Suisse, said that, based on fourth-quarter numbers released on Nov. 13, AECOM’s organic growth “is starting to turn the corner … and is expected to continue into [fiscal] 2018.” But she cautioned that “key risks include execution against the bid pipeline, project execution of fixed-price work and [merger-and-acquisition] integration.”
In its design and construction services group, Cook said, AECOM foresees $15 billion of projects to be bid over the next 18 months.
She also noted that the release of October retail numbers by equipment giant Caterpillar showed machine sales up 19%, "a meaningful acceleration relative to September when sales were up 13% and with improvements across every single region."
Related to construction sector sales, t"he trend was also encouraging," she said, with sales accelerating by 20% vs. up 15% in September. According to Cook's review, Asia/Pacific sales went up most sharply at 58%, Latin America rose by 35% and North America jumped 10% vs. 4% in September.