The U.S economy grew by 2.5% in 2017, outpacing 2016, and is expected to produce similar growth in 2018. A major contributor to the economy is construction, and the outlook for construction spending in 2018 overall is positive, particularly nonresidential. The AIA’s semi-annual Consensus Construction Forecast, a survey of the nation’s leading construction forecasters, is projecting 4% growth in nonresidential construction spending in 2018 and 3.9% in 2019.
2017 Construction Spending
U.S put-in-place construction spending grew an estimated 3.8% in 2017 to $1.23 trillion, based on U.S. Commerce statistics, not seasonally adjusted.
Residential construction was the driver behind this growth, ending the year at an estimated $522.3 billion, reflecting a remarkable 10.4% growth rate. Nonresidential construction, however, declined 0.6% to $708.2 billion.
Private nonresidential grew 0.6%, with the biggest gains in commercial (14%), transportation (12.5%). Public nonresidential declined 2.5%, with the biggest declines in infrastructure such as power (-28.2%), sewage and waste disposal (-13%) and water supply (-10.3%).
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“Construction spending ended the year on a high note, with gains over November levels for all major categories, but the annual totals for 2017 were much more mixed,” said Ken Simonson, chief economist for The Associated General Contractors of America. “For now, it appears residential construction will grow strongly again in 2018, while private nonresidential categories will be uneven, and public spending is at risk of recording a third consecutive decline.”
Current Construction Indicators
The Architecture Billings Index (ABI) concluded the year in positive terrain, with the December reading capping off three straight months of growth in design billings.
The American Institute of Architects (AIA) reported the December ABI score was 52.9, down from a score of 55.0 in the previous month. This score still reflects an increase in design services provided by U.S. architecture firms (any score above 50 indicates an increase in billings). The new projects inquiry index was 61.9, up from a reading of 61.1 the previous month, while the new design contracts index decreased slightly from 53.2 to 52.7.
Regional averages were South (56.3), West (53.0), Midwest (52.9), Northeast (49.4). By sector: multi-family residential (55.4), commercial / industrial (54.8), institutional (51.2), mixed practice (50.4).
The regional and sector categories are calculated as a 3-month moving average, whereas the national index, design contracts and inquiries are monthly numbers.
“Overall, 2017 turned out to be a strong year for architecture firms. All but two months saw ABI scores in positive territory,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “Additionally, the overall strength of the fourth quarter lays a good foundation for healthy growth in construction activity in 2018.”
The electrical industry expressed optimism about current economic conditions during every month of 2017. The National Electrical Manufacturers Association’s (NEMA) Electroindustry Business Conditions Index (EBCI) for current conditions in North America stayed at or above a score of 50 throughout the year, ending with a solid 66.7. The future conditions component similarly remained in expansionary territory at the end of the year even as the topline reading declined to 73.3 from November’s 88.5.
AIA Consensus Forecast for 2018
For 2018, the American Institute of Architects’ (AIA) semi-annual Consensus Construction Forecast is projecting growth in overall nonresidential building construction spending of 4%. The commercial construction sectors are expected to generate much of the expected gains this year, and by 2019 the industrial and institutional sectors will dominate the projected construction growth.
“Rebuilding after the record-breaking losses from natural disasters last year, the recently enacted tax reform bill, and the prospects of an infrastructure package are expected to provide opportunities for even more robust levels of activity within the industry,” said AIA’s Baker. “The Architecture Billings Index (ABI) and other major leading indicators for the industry also point to an upturn in construction activity over the coming year.”
The American Institute of Architects’ (AIA) semi-annual Consensus Construction Forecast, a survey of the nation’s leading construction forecasters, is calculated as an average of all forecasts provided by panelists that submit forecasts for each of the covered building categories. The AIA Consensus Construction Forecast Panel is conducted twice a year with the leading nonresidential construction forecasters in the United States including Dodge Data & Analytics, Wells Fargo Securities, IHS-Global Insight, Moody’s economy.com, CMD Group, Associated Builders & Contractors and FMI.
Click here to see each of the panelist’s projections.