The U.S. economy grew by 2.2% in 2019 and is expected to slow to 2% in 2020, according to the most recent forecast released by the Federal Open Market Committee Meeting on December 11, 2019. The slowdown in 2019-20 is considered a byproduct of the trade war.
A major contributor to the economy is construction, and the outlook for construction spending in 2020-21 is positive but lower than 2019. The AIA’s semi-annual Consensus Construction Forecast, a survey of the nation’s leading construction forecasters, is projecting 1.5% growth in nonresidential construction spending in 2020 and 1% in 2021.
2019 Construction Spending
U.S put-in-place construction spending grew to a seasonally adjusted annual rate of $1.32 trillion in November 2019, the latest month for which data was available at the time of writing. Year over year, total construction spending increased 4.1%. Actual spending was $1.2 trillion as of November 2019, a year-over-year decline of 0.8%.
Nonresidential construction spending grew to a seasonally adjusted annual rate of $743 billion in November 2019, a year-over-year increase of 5.1%. This was driven by public nonresidential spending, which grew at a very strong 12.4%, while private nonresidential spending remained flat. Actual spending was $721 billion, a year-over-year increase of 2.5%.
Click here to see the data.
Current Construction Indicators
In January 2020, the American Institute of Architects (AIA) reported the December 2019 Architecture Billings Index (ABI) score was 52.5, indicating an increase in demand for design services provided by U.S. architecture firms. This was the third month in a row the ABI increased, ending the rocky year on a positive note.
Project inquiries and design contracts also increased during the month, with the new projects inquiry index at 58.7 and the new design contracts at 53.4.
Regional averages were Midwest (54), Northeast (44), South (52.2), and West (54). By sector: institutional (50.8), commercial/industrial (54), mixed practice (50.8), and multi-family residential (51).
The regional and sector categories are calculated as a 3-month moving average, whereas the national index, design contracts, and inquiries are monthly numbers.
“Despite the ongoing slowdown in billings in the Northeast, balanced growth across sectors and regions looks more positive for the coming year,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “Factors outside of the construction sector, such as trade policy and international events, could still impact demand for design services, however recent fears about a downturn in construction activity have largely subsided.”
Electrical industry business confidence underwent a turbulent year, with unease and uncertainty about trade, weakness in the industrial sector, and impeachment in Congress. The National Electrical Manufacturers Association’s (NEMA) Electroindustry Business Conditions Index (EBCI) for current conditions in North America declined below or teetered at the expansionary score of 50 during six months of the year, ending at a score of 50.
However, NEMA noted a pronounced upswing in the percentage of respondents expecting better conditions in six months, pushing the future conditions component of the index to its highest reading since June 2018. Some respondents noted their optimism was conditional on achieving a satisfactory resolution to the trade war.
Associated General Contractors of America
Despite signs the overall economy may be slowing, a majority of construction firms expect demand for their services and hiring will expand in 2020, with many worried about their ability to find qualified workers to hire, according to a survey released at the end of 2019 by the Associated General Contractors of America and Sage Construction and Real Estate. The findings are detailed in Strong Demand for Work Amid Stronger Demand for Workers: The 2020 Construction Hiring and Business Outlook Report.
“Contractors are very optimistic about demand for construction in 2020,” said Stephen E. Sandherr, the association’s chief executive officer. “At the same time, many construction executives are troubled by labor shortages and the impacts those shortages are having on operations, training and safety programs, and bottom lines.”
AIA Consensus Forecast for 2020
Nonresidential construction spending on buildings is projected to grow by just 1.5% percent through 2020, and less than a 1% increase in 2021, according to a new consensus forecast from The American Institute of Architects (AIA).
Construction spending last year was surprisingly weak, according to AIA, but current estimates suggest the industry had a modest increase in 2019. Retail construction activity was expected to underperform in 2019 but did not see the double-digit percentage declines that were expected. The AIA’s Consensus Construction forecast panel expects similar conditions in 2020 and 2021.
“The broader economy is expected to continue to see slower growth this year, but the number of potential trouble spots seems to be diminishing,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “Revenue trends at architecture firms saw an uptick in the fourth quarter last year, which suggests construction spending will continue to see growth in the coming quarters.”
Click here to see each of the panelist’s projections.