The COVID-19 pandemic produced enormous strain on the global economy. The U.S. economy contracted by an estimated 2.4% in 2020 but is expected to enjoy an extraordinary rebound to grow 4.2% in 2021, according to the Federal Reserve. The official unemployment rate is 6.7% in 2020, which will fall to 5% in 2021.
A major contributor to the economy is construction, which is similarly mixed with a healthy residential market but a declining nonresidential market. In the nonresidential market, the future outlook is similarly negative for 2021 but positive for 2022.
In January 2021, the American Institute of Architects’ (AIA) semi-annual Consensus Construction Forecast, a survey of the nation’s leading construction forecasters, projected a 5.7% decline in nonresidential construction spending in 2021. Construction spending is then projected to grow 3.1% in 2022 as the renewal of economic activity unleashes pent-up demand for nonresidential space.
The panel expects the steepest declines in construction spending this year to occur on office buildings, hotels, and amusement and recreation centers. Health care and public safety are the only major sectors that are slated to produce gains in 2021. Nearly all vertical markets are expected to gain in 2022, with retail, hotel, and amusement and recreation projected to be the biggest winners of the recovery.
2020 Construction Spending
U.S put-in-place construction spending grew to a seasonally adjusted annual rate of $1.46 trillion in November 2020, the latest month for which data was available at the time this article was written. Year over year, total construction spending increased 3.8%. Actual spending was $1.3 trillion as of November 2020, a year-over-year increase of 4.4%. This growth was driven largely by a healthy residential market, which grew at seasonally adjusted rate of 16.2%.
Nonresidential construction spending, meanwhile, contracted 4.7% to a seasonally adjusted annual rate of $793 billion in November 2020. While public nonresidential construction grew 2.6%, private nonresidential construction contracted 9.5%, with losses led by lodging, amusement and recreation, manufacturing, religious, and office vertical markets.
Click here to see the data.
Current Construction Indicators
In January 2021, the American Institute of Architects (AIA) reported the December 2020 Architecture Billings Index (ABI) score was 42.6, indicating a decrease in demand for design services provided by U.S. architecture firms. This was the tenth month in a row the ABI remained mired in contractionary territory.
Meanwhile, the pace of growth of inquiries into new projects was more positive with a score of 52.4, though the value of new design contracts was negative with a score of 48.5. Regional averages were Midwest (43.6), Northeast (38.8), South (46.8), and West (43.4). By sector: institutional (38.5), commercial/industrial (47.2), mixed practice (48.0), and multi-family residential (46.1). (The regional and sector categories are calculated as a 3-month moving average, whereas the national index, design contracts, and inquiries are monthly numbers.)
“Since the national economic recovery appears to have stalled, architecture firms are entering 2021 facing a continued sluggish design market,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “However, the recently passed federal stimulus funding should help shore up the economy in the short-term, and hopefully by later this year there should be relief as COVID vaccinations become more widespread. Recent project inquiries from prospective and former clients have been positive, suggesting that new work may begin picking up as we move into the spring and summer months.”
Electrical industry business confidence underwent a very turbulent year, which fell below the expansionary score of 50 during three months of the year. The National Electrical Manufacturers Association’s (NEMA) Electroindustry Business Conditions Index (EBCI) for current conditions in North America, however, remained largely positive, ending the year on a high note of 57.7.
Associated General Contractors of America
A majority of general contractors expect demand for many types of construction to shrink in 2021 even as the pandemic is prompting many owners to delay or cancel already-planned projects, according to Associated General Contractors of America, which recently released the 2021 Construction Hiring and Business Outlook.
“This is clearly going to be a difficult year for the construction industry,” said Stephen E. Sandherr, the association’s chief executive officer. “Demand looks likely to continue shrinking, projects are getting delayed or canceled, productivity is declining, and few firms plan to expand their headcount.”
The percentage of respondents who expect a market segment to contract exceeds the percentage who expect it to expand (net reading) in 13 out of 16 categories of projects included in the survey.
Contractors are most pessimistic about the market for retail construction, which has a net reading of negative 64%. They are similarly concerned about the markets for lodging and private office construction, which both have a net reading of negative 58%.
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AIA Consensus Forecast for 2020
Slowing demand at architecture firms last year is expected to contribute to a projected 5.7% decline in construction spending for 2021, according to the AIA Consensus Construction Forecast Panel made up of leading economic forecasters.
The consensus forecast expects steep declines this year in construction spending on office buildings, hotels, and amusement and recreation centers. Health care and public safety are the only major sectors that are slated to produce gains in 2021.
Growth in nonresidential construction is expected for 2022, with 3.1% gains projected for the overall building market matched by both the commercial and institutional sectors.
“The December jobs report confirmed that the economy needs additional support in order to move to a sustainable economic expansion,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “As pandemic concerns begin to wane and economic activity begins to pick up later in 2021, there is likely to be considerable pent-up demand for nonresidential space, leading to anticipated growth in construction spending in 2022.”
Click here to see each of the panelist’s projections.
|Retail & Other||-3.5%||+5.2%|
|Amusement & Recreation||-12.6%||+11.1%|