Engineering Inc. - January/February 2015 - (Page 10)

MarketWatch BY G E R RY D O N O H U E 2015 Forecast: Oil and Gas Surge Slows; Office Buildings, Manufacturing Markets Rebound T he nearly exponential growth in domestic natural gas and oil production-which has breathed life into an otherwise drab economic recovery over the past few years-will slow in 2015. The glut of natural gas and oil in global markets pushed down oil prices by 35 percent in the second half of 2014 to around $65 a barrel in early December. While lower energy prices will likely boost the national economy, they will also make increasingly unaffordable unconventional extraction methods-such as hydraulic fracturing and horizontal drilling. "Oil and gas are embedded in several sectors," says Lee Smither, managing director of FMI. "Some of it is in power, some in manufacturing, land development, transportation-you have to look at all of these together to get a sense of how big a driver energy is for engineering." While those sectors are forecast to grow in 2015, because of project backlogs, a long-term dip in oil prices could slow an engineering market already burdened by near stagnate public markets. Escape Velocity Technically, the U.S. economy has been expanding since 2009, but recovery from the 2008 financial crisis has been historically weak. "We have growth without acceleration," says Kleinfelder President and CEO William Siegel. "I just don't see the 4, 5, 6 percent GDP growth rates coming back any time soon." Neither do the economists. A cross-section of economic forecasts puts U.S. GDP growth at between 3.0 and 3.25 percent in 2015 and between 2.5 and 3.0 percent in 2016 and 2017. "We haven't yet hit escape velocity to get out of the spot we're in," Smither says, adding, "I think we're close." EBI Survey: Private Markets Show Strength, Backlogs Increase 2015 will be a good year, particularly for private client markets, according to ACEC's Engineering Business Index (EBI), which charts the health of the engineering industry through survey responses from hundreds of firm leaders. In the third-quarter survey, conducted in October, firm CEOs produced a solidly positive composite score of 68.8. Any score above 50 indicates expansion. More than six in 10 (61.7 percent) respondents expect to see improvement in the Land Development market in 2015, 56.1 percent in Power and Energy, and 53.1 percent in the Buildings and Commercial sector. Firm backlogs have grown-65 percent reported higher backlogs compared with the same time last year-and 49.3 percent expect their backlogs to increase further in 2015. Public market expectations are lagging. Only 43.8 percent of respondents believe that the Water and Wastewater segment will improve in 2015, and only 39.7 percent expect the transportation market to grow. To view the full EBI report, go to www.acec.org and click on the "Engineering Business Index" link. 10 ENGINEERING INC. JANUARY / FEBRUARY 2015 Pipelines, Rail Moving oil and natural gas from recently discovered fields to refineries and to market represents both a challenge and an opportunity, because many of these sources are in areas not served by existing pipelines. Thousands of miles of pipeline have been approved and those projects will begin in the next few years. Recent reports suggest energy companies are reconsidering tens of billions in infrastructure-including pipelines-in the wake of the oil price drop. Railroads have been spending nearly $16 billion per year for the past several years to upgrade infrastructure to ship oil and natural gas in the absence of a robust pipeline infrastructure. Continued rail development will provide substantial opportunities for engineering firms over the next several years. Growing Markets Domestic manufacturing will capitalize on affordable oil and gas, both as a fuel and as a raw material. Analysts expect the sector to continue to expand, averaging more than 7 percent growth from 2015 to 2018. Construction spending in the sector was up 23 percent in November compared with a year ago. In addition, manufacturing employment is at its lowest level since 2008. The office building market, which has not fared well in recent years, is also having a resurgence and is forecast to grow at better than 5 percent annually through 2018. "Vacancy rates are the lowest they've been in years and we're seeing a lot of high-rises being built-and not just in New York City, but in Kansas City and Minneapolis and even in Atlanta," Smither says. The lodging market has been the most volatile segment over the past six years. After shrinking by nearly 75 percent from 2007 to 2009, the segment grew by almost 70 percent from 2012 to 2014. Projections have the lodging segment growing at 8 percent annually over the next four years. Public Funding Highway and street construction is forecast to average about 2.5 percent annual growth through 2018, and the water and wastewater markets will grow by only 3 percent annually. In both cases, the problem is limited funding. "For highways it's all about federal funding, which hasn't been forthcoming in recent years, and I don't have a lot of optimism looking forward," says Smither. In the water and wastewater markets, the low levels of funding are primarily at the local level. "Local tax bases have still not recovered to pre-recession levels," he says. The education market, expected to average only 3 percent growth in coming years, is struggling to adjust to the expansion of online learning. The healthcare segment will continue to show moderate growth of 4 percent in 2015 and only 5 percent in 2016. Gerry Donohue is ACEC's senior communications writer. He can be reached at gdonohue@acec.org. http://www.acec.org

Table of Contents for the Digital Edition of Engineering Inc. - January/February 2015

Engineering Inc. - January/February 2015
Contents
From Acec to You
Legislative Action
Market Watch
The Business Case for Diversity
Closing the Gender Gap
Market Stability Keeping Pli Prices Low
2015 Legislative Scorecard
Made to Market
2014 Fall Conference Highlights
2015 Annual Convention Preview
Risk Management
Business Insights
Members in the News
Mergers and Acquisitions

Engineering Inc. - January/February 2015