Engineering Inc. - January/February 2014 - (Page 4)

MarketWatch BY G E R RY D O N O H U E U .S. economic growth in 2014 and beyond will depend largely on the ability of 535 people to get their act together, say economists. "Congress has certainly done a lot of things to stand in the way of growth," says Bernie Markstein, chief economist at Reed Construction in Silver Spring, Md. "It has failed in its responsibility for fiscal policy. If we could get a good budget from the federal government and raise the debt ceiling for more than a few months, we would remove a lot of uncertainty from the economy." Such uncertainty is caustic for the economy, says Karen Blanford, research director of global construction services at IHS Economics in Lexington, Mass. "If the political climate doesn't improve, we're just going to go from crisis to crisis. That dampens consumer and business confidence. Without that confidence, nobody is willing to invest." One statistic starkly highlights the fallout from this lack of investment: Although the United States is in the fourth year of an economic recovery, employment remains 1.8 million jobs below its prerecession peak. The engineering industry has felt its share of pain. Although engineering employment has increased in 29 of the 36 months since it hit its lowest point in October 2010, it is still 7 percent below its peak, which it last reached in February 2008. "Firms aren't expanding because they don't have any confidence in their backlogs," says 4 ENGINEERING INC. Steve Isaacs, division manager for architectural and engineering services at FMI. "They're discounting the work they have underway because they're not convinced it will keep going. They're not even sure that the work they have scheduled to start will really start." And yet, the American economy remains a force. The United States has one of the largest population growth rates among countries with advanced economies, which fuels demand for housing, goods and services. The expansion in domestic natural gas and oil production provides a long-term reliable source of affordable energy. According to the International Energy Agency, The United States will surpass Russia in 2014 as the world's largest oil producer. Construction Growth and GDP Citibank forecasts U.S. gross domestic product (GDP) to grow 2.7 percent, significantly outpacing the estimated 1.7 percent growth realized through 2013. From 2015-2017, Citibank projects 3.1 percent annual GDP growth. That's progress. But it's nothing compared with projected construction growth. According to FMI, total construction spending will grow at more than double the pace of U.S. GDP. Construction spending is projected to increase by 7 percent in 2014 to $977 billion and average 7.7 percent annual growth from 2015-2017. "Growth rates for construction are beginning to look good," says Blanford, "but a lot of that is because the JANUARY / FEBRUARY 2014 JOENSTOCK/GETTY IMAGES 2014 Construction Growth To Outpace the U.S. GDP market really bottomed out in 2008-2009." Case in point: residential construction. The market leaped by an estimated 18 percent in 2013, and FMI forecasts annual growth exceeding 10 percent through 2017. That's good. But, "even with these growth rates," Blanford says, "we're never going to see residential construction get back to the precrash levels." FMI's projection of $506 billion in residential construction spending in 2017 is still nearly 20 percent lower than its 2006 market peak. Overall construction spending in the United States is expected to top its 2006 peak by 2017, due primarily to phenomenal growth in the power sector. That rate should slow in subsequent years, but the power sector will still average 8 percent growth annually through 2017. "Everyone agrees we have a need for power and the need is going to get greater-both in this country and abroad," Isaacs says. Much of the recently discovered natural gas and oil reserves are far removed from population centers and refineries, requiring a dramatic expansion in the pipeline network. According to the Interstate Natural Gas Association of America, the United States and Canada will require between 28,900 and 61,600 miles of new pipeline by 2030. New clean-air regulations will drive the power generation industry to shutter existing coal plants in favor of new naturalgas-powered plants. Other Sectors Health care construction has bucked demographic trends in recent years. Both the growth and the aging of the U.S. population was expected to fuel a strong recovery in the sector, but it is still more than 11 percent below its 2008 peak. "There's a lot of uncertainty in the health care market because of the Affordable Care Act," says Isaacs. "Nobody knows how it is going to play out." Additionally, the industry's model for providing health care has changed. "We're seeing fewer new big facilities," he says. "More and more care

Table of Contents for the Digital Edition of Engineering Inc. - January/February 2014

Engineering Inc. - January/February 2014
From ACEC to You
Market Watch
Legislative Action
Extreme Weather Resistance
2014 Legislative Outlook
Model Infrastructure
The Hard Market That Never Came
2013 Fall Conference Highlights
Mirrored Concerns
Risk Management
Business Insights
Members in the News
Mergers and Acquisitions

Engineering Inc. - January/February 2014