Engineering Inc. - January/February 2016 - (Page 4)

MarketWatch BY G E R RY D O N O H U E Construction Projections Rise, Yet Industry Executives Remain Cautious Strong Industry Forecasts According to Dodge Data & Analytics, the value of construction will grow at an annual rate of 7.3 percent through 2018. But Dodge also expects that the overall economy will cool in 2019 and 2020, with the construction market falling by about 4 percent each year. FMI, which bases its projections on the value of put4 ENGINEERING INC. Put-in-Place Construction Forecast Estimated Percentage Growth 2016 2017 2018 2019 Total Residential 9% 7% 8% 8% Total Non-residential Buildings* 7% 5% 5% 6% Total Non-building Structures** 3% 3% 5% 5% Total Put-in-Place 7% 5% 6% 7% *Includes lodging, office, commercial, health care, educational, religious, public safety, amusement and recreation, transportation, communication and manufacturing **Includes power, highway and street, sewage and waste disposal, water supply, and conservation and development Source: FMI Total Construction Activity by Cycle Cyclical Trough (T)=100, Based on Constant Dollars 190 175 2011-?? 160 145 130 115 1982-1991 100 85 70 1991-2011 1975-1982 T T+2 T+4 T+6 T+8 T+10 T+12 T+14 Years from Cyclical Trough T+16 T+18 T+20 Source: Dodge Data & Analytics in-place construction rather than the value of construction starts, presents a similarly rosy picture through 2019, forecasting an average annual growth rate of 6.3 percent to $1.31 trillion. Within that forecast, nonresidential construction growth will average about 5.2 percent annually, and residential construction will grow about 8 percent. In this positive market environment, why are engineering firm leaders feeling cautious? One factor is timing. Engineering firms make most of their money in the project planning phase, but the market data only begins measuring when construction actu- JANUARY / FEBRUARY 2016 ally begins. Analysts estimate that the engineering cycle precedes nonresidential construction by as much as 24 months. So, while the construction market is expected to top out in 2018-2019, engineering firms could see their business peak as early as 2016. Another factor, says HDR Engineering President Eric Keen, is unease about the public sector. "There is uncertainty on the federal budget and the election. As a result, we see 2016 and 2017 as being relatively slow growth." Even though Congress passed a long-term transportation bill, funding levels are nowhere near what is required to meet needs, and the nation's water infrastructure remains sorely underfunded. "There is huge pent-up demand across the entire infrastructure sector but a lack of political backbone- on the federal, state and local levels-when it comes to paying for it," says CDM Smith Chairman and CEO Stephen Hickox. "Right now, the people who control the purse strings believe they will lose their jobs if they vote to spend money," says Gannett Fleming Chairman and CEO Bill Stout. "We need for them to believe they will lose their jobs if they don't." Another factor taking its toll on CEO confidence is global instability, including the growing threat of regional conflicts and weakness in many major economies around the world-especially the apparent slowdown in China. Finally, Dodge's Camp says the engineering industry has seen a significant decoupling of individual market sectors. In the past, the market as a whole tended to rise and fall RICHARD NEWSTEAD T he U.S. economy has been steadily growing for several years, U.S. gross domestic product is forecast to top 3 percent in 2016, unemployment is hovering around 5 percent and interest rates are at historic lows. That's welcome news for the construction sector. The value of construction starts has climbed from $435.3 billion in 2010 to a projected $674.3 billion in 2015, and market forecasters see continued- and even accelerated-growth through 2018. Despite an overall, positive construction market outlook, the ACEC Engineering Business Index (EBI) showed a small but steady decline in optimism for five consecutive quarters. The latest survey, completed at the end of December 2015, showed a slight rebound in optimism. "We're nowhere near the top of the construction cycle," says Kyle Camp of Dodge Data & Analytics, which tracks construction activity nationwide. "We should be feeling really good right now, but we're only feeling OK."

Table of Contents for the Digital Edition of Engineering Inc. - January/February 2016

Engineering Inc. - January/february 2016
Table of Contents
From ACEC to You
Market Watch
Legislative Action
Turning Back the Tides
2016 Legislative Outlook
Racing to Help
Going Global
Smooth Sailing
2016 Annual Convention Preview
Business Insights
Mergers and Acquisitions
Members in the News
Guest Column

Engineering Inc. - January/February 2016