The government shutdown was not a good thing, as many politicians have claimed, he said. And the industry may see many direct and indirect impacts because of it. Simonson’s Oct. 17 presentation on the current state of the construction industry to a group of local contractors was hosted by the Colorado Contractors Association—the heavy/highway arm of the local AGC chapter—and AGC of Colorado, the state’s building division.
“This is still a fragile time,” Simonson told the group in Denver, because the national construction industry has been gradually climbing at a “not-very-steady pace” since 2011. He cited three negative factors that could affect the industry’s slow recovery.
First, he said, government spending is on the decline, and that will continue in the near future. Spending on public projects is down an average of 4% nationwide from July 2012 to July 2013. There is less money being spent on schools and infrastructure, and that decline that may persist for at least another year. Second, traditional retail is in transition, with “less brick-and-mortar” outlets and more online sales, Simonson said. “That’s one reason why we’re seeing less ground-up retail. It’s not happening and not likely to catch on again,” he said.
Third, Simonson pointed out that employers are shrinking the amount of office space being used for each employee, and businesses are seeking more mobility and flexibility in their office alignments. “The space per employee is dropping, which means less of a need for new office space, and that will also continue,” he said.
But Simonson also said the construction industry may get a bump from several positive developments. One of those is the “shale gale,” a sharp increase in the pursuit of shale-based petroleum resources, especially across the northern Midwest and in the West. That surge has enhanced local spending and construction in places like North Dakota but will also have “upstream-downstream” impacts such as the construction of more pipelines, refineries and storage facilities.
“The wind and solar [power] markets could be negatively affected by that,” he said. “But there is more pressure in the West to continue the growth of those industries.”
Simonson also touts the Panama Canal expansion as potential good news for the construction industry, especially in American port cities, where docks must be enlarged and retooled and harbors dredged to handle the much-larger supertankers and container ships that will using the canal. “That means better rail connections, highways, bridges and tunnels will be needed to transport those products,” he said.
He also sees a continuing upswing in the residential sector (single-family up 29%, multifamily up 39% this year), which will drive construction spending in other areas as well. But, he said, tightened lending standards, changing demographics and consumer preferences for housing—especially among young people—will change the face of the market even further.
“We will see less single-family, more multifamily, especially in urban core areas. People are less willing to drive 90 minutes to work and to shop than in years past,” he said.
Simonson’s July 2012 to July 2013 updates for key sectors nationwide are as follows: the power construction sector, up 6%; education, down 10% (and “tumbling” further, he said); highways, down 4%; retail, up 2%; the manufacturing sector, flat; transportation sector (non-highway), up 11%; health care, down 1%; offices, down 2% and lodging, up 30%, the biggest growth sector. He attributes the growth of the hospitality market to more business travel and a more nimble lodging sector, which is building more long-stay hotels and the smaller boutique hotels that are in demand.
On construction employment, Simonson said the industry remains 1.9 million workers behind its peak of the last decade, but firms are starting to see employment shortages for skilled workers, and that will get worse. Construction spending has increased 19% since 2011, but that has resulted in only a 7% increase in hiring. The unemployment rate in the industry has dropped from 17% to 9% in the past three years, but there are 725,000 fewer people employed in construction than before the recession. Three-quarters of firms that participated in a recent AGC labor survey said they are having trouble finding enough qualified workers, Simonson said.
He said that overall materials prices are not a concern at this point although prices for gypsum and lumber have seen steep increases with the resurgence of the housing market.
“We will see a prolonged period of moderate growth in construction spending,” he said. “But it will be very mixed, with less money for public infrastructure.”
Simonson foresees a 5% to 10% growth in construction spending nationally through the end of this year, led by the ongoing 15% to 20% boom in the residential sector.
“And next year will be interesting,” he said.