The U.S. economy grew by 3% in 2018, outpacing 2017, and is expected to moderate to 2.3% in 2019 and 2% in 2020, according to a forecast released at the Federal Open Market Committee Meeting on December 19, 2018.
A major contributor to the economy is construction, and the outlook for construction spending in 2019 overall is positive, particularly nonresidential. Similarly to the overall economy, however, this growth is expected to moderate in 2020. The AIA’s semi-annual Consensus Construction Forecast, a survey of the nation’s leading construction forecasters, is projecting 4.4% growth in nonresidential construction spending in 2019 and 2.4% in 2020.
2018 Construction Spending
U.S put-in-place construction spending grew to a seasonally adjusted annual rate of $1.309 trillion in October 2018, based on U.S. Year over year, total construction spending increased 4.9%.
Nonresidential construction was the driver behind this growth, increasing 7.3% over 12 months. Private nonresidential spending increased 6.4% over 12 months. Buoyed by large increases in education and other public spending, public construction spending increased 8.5% for the year.
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Current Construction Indicators
The Architecture Billings Index (ABI) moderated but remained in positive terrain at the end of 2018, with the December reading marking 15 straight months of growth in design billings.
The American Institute of Architects (AIA) reported the December ABI score was 50.4, down from a score of 54.7 the previous month. Any score above 50 indicates an increase in demand for design services provided by U.S. architecture firms. Despite the positive billings, a softening in growth was seen across several regions and sectors, as well as in project inquiries and design contracts.
The new projects inquiry index was 55.6, while the new design contracts was 52.1.
Regional averages were Midwest (56.3), Northeast (51.6), South (49.4), and West (49.2). By sector: institutional (53.1), commercial/industrial (51.2), mixed practice (50.2), and multi-family residential (49.8). The regional and sector categories are calculated as a 3-month moving average, whereas the national index, design contracts and inquiries are monthly numbers.
“Given the concerns over the ongoing tariff situation, it is not surprising to see a bit of a slowdown in progress on current projects,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “Growing anxiety over unstable business conditions and the partial shutdown of the government may lead to further softening in the coming months.”
The electrical industry became somewhat pessimistic about current economic conditions toward the end of 2018, with uncertainties about tariffs and political conditions in Washington. The National Electrical Manufacturers Association’s (NEMA) Electroindustry Business Conditions Index (EBCI) for current conditions in North America declined below the expansionary score of 50 during three out of the last four months of the year, ending with a rise to 46.2.
AIA Consensus Forecast for 2019
Nonresidential construction spending on buildings is projected to grow by 4.4 percent through 2019, according to a consensus forecast released by the AIA in January.
Healthy gains in the industrial and institutional building sectors have bolstered growth projections for 2019; however, the Forecast Panel—consisting of leading economic forecasters—is suggesting that a broader economic downturn may be materializing over the next 12-24 months.
“Though the economy has been performing very well recently, trends in business confidence scores are red flags that suggest a slowdown is likely for 2020,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “These signals may be temporary responses to negative short-term conditions, but historically they have preceded a more widespread downturn.”
Click here to see each of the panelist’s projections.