Issue link: http://read.dmtmag.com/i/330408
Industry Beat 16 | www.cedmag.com | Construction Equipment Distribution | June 2014 FRQWLQXHGRQSDJH Reed Construction Data recently held its sixth annual spring economic webcast featuring chief economists Kermit Baker of the American Institute of Architects (AIA), Ken Simonson of the Associated General Contractors (AGC) and Bernard Markstein of Reed Construction Data. Baker provided an optimistic yet cautious outlook for the residential housing market. Residential housing starts rebounded to a rate of more than 1 million units in late 2013, but have slowed of late. A 40 percent recovery in housing prices is helping push the market forward. A consensus forecast shows the residential segment will be up 23 percent in 2014 and 24 percent in 2015. However, Baker cautioned that the recovery in home prices is showing a lot of regional variation, with those markets hardest hit in the downturn recovering fastest. "House prices are moving in the right direction, but mobility rates have been very low for home owners and will remain low," said Baker. "That is key to getting resi- dential market unglued." Mobility has been hampered by the housing market collapse, and current homeowners may want to stay put to avoid paying higher interest rates. Despite the healthy outlook for residential housing, Baker concluded that we are still far below the long-term potential for the residential market – 1.8 million starts. Since hitting bottom in 2011, the nonresidential building market has been slow to recover. In 2013 construction spending in this sector rose a disappointing .1 percent. But the market appears to be off to a strong start in 2014. Baker's forecast calls for a 5.8 percent increase in 2014. The commercial sector will lead the market with 10 percent growth, followed by the industrial sector with 7.8 percent growth, and institutional spending lagging at 3.4 percent growth. Causing some concern is that architectural billings, which lead the market by approximately 11 months, recently hit a soft spot after 18 months of growth. When surveyed, AGC members were optimistic that the dollar volume of projects completed in 2014 will be higher than 2013, particularly for manufacturing, retail/warehouse/ lodging, private office and hospital/higher education. Simonson reported that construction activities related to shale, the Panama Canal expansion and residential construc- tion are driving the market, and have resulted in uneven growth across the nation. His forecast calls for 4-8 percent growth in all nonresidential sectors in 2014 (building and nonbuilding) with the hottest sectors (+10%) being power (oil and gas structures and pipeline), manufacturing and lodging. On the residential side, multifamily construction will remain strong until 2015. According to Simonson, finding skilled labor will be a growing issue as construction activity increases. Results of survey conducted in August 2013 show nearly half of AGC respondents had difficulty finding equipment opera- tors (49%) and project managers (49%). Labor costs are expected to rise 2.5 to 5 percent in 2014, while material costs will rise 1 to 3 percent. Of all the segments, Simonson is most concerned about highway spending, where the forecast is for 0 to -5 percent. Reed Construction Economist Markstein blames the recent slowdown on the harsh winter rather than underlying economic weakness. "We are struggling to get to one million starts," he said, and he expects 7 percent growth in residential and 9 percent growth in nonresidential building in 2014. He looks for lodging, office space and retail to Economy Continues to Strengthen, But Questions Remain Spring 2014 forecast from AIA, AGC and Reed Construction economists