2016
FMI’s Construction Outlook
Third Quarter Report
Table of Contents
Third Quarter 2016 Construction Outlook
Construction Forecast ............................................................................................... 1
Residential Construction ............................................................................................ 3
FMI Nonresidential Construction Forecast ..................................................................... 6
Lodging ........................................................................................................... 6
Office .............................................................................................................. 7
Commercial ...................................................................................................... 8
Health Care ...................................................................................................... 9
Education ......................................................................................................... 10
Religious .......................................................................................................... 11
Public Safety ..................................................................................................... 12
Amusement and Recreation .................................................................................. 13
Transportation ................................................................................................... 14
Communication.................................................................................................. 15
Manufacturing ................................................................................................... 16
Nonbuilding Structures ............................................................................................. 17
Power .............................................................................................................. 17
Highway and Street ........................................................................................... 18
Sewage and Waste Disposal ............................................................................... 19
Water Supply .................................................................................................... 20
Conservation and Development ............................................................................ 21
Construction Put in Place Estimated for the U.S. ............................................................. 22
Appendix ............................................................................................................... 23
1
3rd Quarter 2016 Report
THIRD QUARTER 2016
CONSTRUCTION OUTLOOK
CONSTRUCTION FORECAST
The construction industry has largely recovered from
the recession, at least in terms of billions of dollars in
construction put in place. Up until the last two years, it
seemed like a very slow recovery, but then the return to
growth blossomed. The acceleration of growth in the past
couple of years wasn’t a complete surprise. However, fresh
memories of the recession kept some companies from
hiring until everyone else started hiring to the point where
labor shortages in the industry became a big issue. Pent-up
demand was set free in almost every construction sector.
So what do we see now for future growth? Continued slow
growth in most areas, but, as noted above, those billions
add up. The economy is still adding jobs, buying homes
and spending money on consumer and durable goods, but
not as much as before the recession, or enough to boost the
Consumer Price Index.
The question that keeps coming up is, how long can we
manage to maintain a slow economy. Is it as sustainable
as we’d like to think? When we asked participants in
FMI’s quarterly Nonresidential Construction Index survey
about the chance of a recession for the economy and the
construction industry in Q3, 78% didn’t expect a recession
until at least the first half of 2018, and 38% of those
respondents don’t expect a recession for at least two years.
Thirty-five percent of respondents expect 1 to 2% growth
(CAGR) during the remaining expansionary period, while
32% expect 3 to 4% growth.
In addition to the important concerns about politics, global
unrest and the general uncertainty these issues bring, there
were several comments by industry executives in the NRCI
Q3 report that mentioned overbuilding in certain markets
around the country. Some hot spots in retail, multifamily,
lodging and manufacturing are maxing out in the cycle,
so it’s time to look for new markets. For many contractors
working in infrastructure markets, demand is still pent-up
due to lack of funding not needs, as we can see in the nonbuilding sectors. Power still leads the way for growth, but
areas like sewage and wastewater and water supply have
great potential around the country if the will and the money
are there.
On the upside, it is a matter of being careful what you wish
for, as firms still have trouble rapidly scaling up in some
specialized areas. A few contractors indicated to us in the
NRCI survey that slower growth for a while wouldn’t be so
bad, as they have been working at capacity or above for a
long time now. Others are happy to finally have found most
of the skilled workers they need for current levels of growth
and hope to train and keep them busy.
FMI’s Construction Outlook
GROSS DOMESTIC PRODUCT
PERCENT CHANGE, QUARTERLY, SEASONALLY ADJUSTED ANNUAL RATE
Source: FMI Research Services
FMI CONSTRUCTION PUT IN PLACE
ESTIMATED FOR THE UNITED STATES
Source: FMI Research Services
2
3
3rd Quarter 2016 Report
RESIDENTIAL CONSTRUCTION
After four years of double-digit growth, we expect single-family housing to add 6% in 2016 to
reach $246.9 billion. This growth is still far short of the pre-recession boom years, and that may
be a good sign as purchasers avoid getting in over their heads in debt and take a more conservative
approach to making the decision to buy a new home. That indecision is showing up in the growth
of multifamily housing and home improvements. After four years of a hot market for multifamily
homes, we expect the rate of growth to cool in 2016 to just 7%. Still, that translates to $61.8
billion in new construction put in place. Many of those who might have once considered moving
to a new home are now improving the home they live in to add rooms or just modernize and
repair to the tune of $155 billion for 2016.
SINGLE-FAMILY HOUSING
6%
$246.9 Billion
MULTIFAMILY HOUSING
Residential construction might be growing faster if there were more skilled labor in some regions
of the country. Faster wage growth in the general population would help too. Higher prices may
also slow the decision to buy a home, as the market is currently a seller’s market with the housing
inventory remaining quite low. The current inventory of houses for sale in the U.S. is just 4.1
months compared to 12.2 months at the height of the recession. (See Appendix for Monthly
Supply of Houses in the U.S.)
RESIDENTIAL CONSTRUCTION PUT IN PLACE
Forecast as of Q3 2016
Source: FMI Research Services
7%
$61.8 Billion
FMI’s Construction Outlook
RESIDENTIAL CONSTRUCTION IMPROVEMENTS PUT IN PLACE
Forecast as of Q3 2016
Source: FMI Research Services
4
5
3rd Quarter 2016 Report
NEW PRIVATELY OWNED HOUSING UNITS STARTED
Seasonally Adjusted Annual Rate
Source: Federal Reserve Economic Data
TRENDS:
„„ According to the U.S. Census Bureau, “National vacancy rates in the second quarter 2016 were 6.7 percent
for rental housing and 1.7 percent for homeowner housing, the Department of Commerce’s Census Bureau
announced today. The rental vacancy rate of 6.7 percent was not statistically different from the rate in the
second quarter 2015 or the rate in the first quarter 2016. The homeowner vacancy rate of 1.7 percent was
not statistically different from the rate in the second quarter 2015 or the rate in the first quarter 2016.” (July
28, 2016)
„„ “The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.1% annual gain in June, unchanged from last month. The 10-City Composite posted a
4.3% annual increase, down from 4.4% the previous month. The 20-City Composite reported a year-overyear gain of 5.1%, down from 5.3% in May.” (S&P Down Jones Indices, August 30, 2016)
„„ According to the U.S. Census Bureau, “Privately owned housing starts in July were at a seasonally adjusted
annual rate of 1,211,000. This is 2.1 percent (±8.8%) above the revised June estimate of 1,186,000 and is
5.6 percent (±14.7%) above the July 2015 rate of 1,147,000.” (July 2016)
DRIVERS:
Unemployment rate
Core CPI
Income
Mortgage rates
Home prices
Housing starts
Housing permits
6
FMI’s Construction Outlook
FMI NONRESIDENTIAL CONSTRUCTION FORECAST
Lodging
Although we expect 18% growth in 2016 compared with 30% in 2015, the pace of growth
for lodging continues to be the highest among the construction categories we cover in
this report. With an expected value of $25.6 billion for 2016, this market is well below its
high of $35.8 billion in 2008, but we expect these numbers to be more sustainable with
a mix of new venues and refurbishing established locations. It is not unusual for lodging
construction to have large swings, and, at this time, new supply is beginning to surpass
absorption, thus putting downward pressure on revenue per room and occupancy rates.
TRENDS:
„„ According to STR, “In year-over-year comparisons, the industry’s occupancy grew 4.3%
to 67.5%. ADR increased 4.2% to $121.22, and RevPAR rose 8.7% to $81.85.” (Hotel
News Now, September 2, 2016)
„„ “STR’s July 2016 Pipeline Report shows 529,665 rooms in 4,322 projects Under Contract in the United States. The total represents a 22.9% increase in the number of rooms
Under Contract compared with July 2015.” (Construction Pipeline U.S., STR August
15, 2016)
„„ Green building is more commonplace in remodels and retrofits.
LODGING CONSTRUCTION PUT IN PLACE
Forecast as of Q3 2016
Source: FMI Research Services
DRIVERS:
Occupancy rate
RevPar
Average daily rate
Room starts
7
3rd Quarter 2016 Report
Office
Office construction will follow a strong show of growth in 2015 (18%) with an expected 16% growth
rate in 2016. Much of the growth has come from an increase in employment, especially in high-tech
job markets. These high growth rates will drop to much lower rates in 2017 and beyond. Continued
growth in the technical sector and in larger metropolitan areas like New York City will keep rents and
absorption of new space high.
TRENDS:
„„ CBRE reports, “The vacancy rate decreased by 10 basis points (bps) to 13% in Q2 2016, the lowest level since Q1 2008. The decrease was entirely attributable to the suburban markets, which
recorded a 20-bps decrease in vacancy to 14.4%. The Downtown vacancy rate rose by 10 bps for
the second straight quarter to 10.5%.” (CBRE Q2 2016 U.S. Office MarketView, July 22, 2016)
DRIVERS:
Office vacancy rate
Unemployment rate
„„ Trends that will likely change the future of offices include office sharing as more people work at
home or on the road via the “cloud”; the younger generation is migrating toward active, vital metro
areas and security, especially in tall buildings.
Millions of Current Dollars
OFFICE CONSTRUCTION PUT IN PLACE
Forecast as of Q3 2016
$80,000
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$-
2000
2001 2002 2003
2004 2005 2006
Source: FMI Research Services
2007 2008 2009
2010 2011 2012
2013 2014 2015
2016 2017 2018
2019 2020
8
FMI’s Construction Outlook
Commercial
The solid growth rate of 6% for commercial construction in 2015 will continue through 2016 before
dropping to 4% and lower through 2020. Some of the fastest-growing areas in commercial retail
construction have been drinking places and food services; however, building materials and garden
supply stores are currently experiencing the highest growth rate. While many national chain stores
continue to close properties and downsize new stores, new startup businesses are taking off in
major metro areas. The marketing landscape for commercial construction is changing rapidly due
to technology and growing options for consumer shopping. Disruption in traditional commercial
construction is occurring not only for online shopping but also in the form of boutique startups and
the future of smart stores both online and stick-built. This will create opportunities for contractors
that can accommodate new design ideas. Growth in nonstore sales is also driving growth in
warehouse space and data centers.
TRENDS:
„„ The Department of Commerce reports, “Retail trade sales were virtually unchanged (±0.5%)* from
June 2016, and up 1.9 percent (±0.5%) from last year. Nonstore retailers were up 14.1 percent
(±1.2%) from July 2015, while Health and Personal Care Stores were up 7.8 percent (±2.3%) from
last year.” (U.S. Department of Commerce, August 12, 2016)
„„ Consumer confidence rose to 101.1 in August, the highest number since September 2015 (103.0).
(The Conference Board, August 30, 2016)
„„ The Internet of Things (IoT) will be increasingly disruptive for commercial business, presenting
both opportunities for new businesses and threats to traditional brick-and-mortar markets.
COMMERCIAL CONSTRUCTION PUT IN PLACE
Forecast as of Q3 2016
Source: FMI Research Services
DRIVERS:
Retail Sales
CPI
Income
Home prices
Housing starts
Housing permits
9
3rd Quarter 2016 Report
Health Care
Health care construction is making a steady recovery. FMI is forecasting $41.0 billion in construction
put in place for 2016 and 5% growth in 2017. Traditional large hospital projects are returning to
the drawing boards with fewer large hospital projects in the works. The bulk of the work will be
renovation and additions as well as outpatient care. New facility designs are upping the game for a
patient-centered environment as well as reducing concerns for the spread of supergerms. Construction
will continue to become more collaborative and integrated with the various communities involved.
TRENDS:
„„ The Bureau of Labor Statistics reports, “Employment of registered nurses is projected to grow 16
percent from 2014 to 2024, much faster than the average for all occupations.”
„„ Veterans Administration hospitals rocked by poor management and patient care, old facilities and
huge construction cost overruns.
„„ Health Facilities Management magazine says, the “industry is moving away from large-scale new
construction, according to survey results. While 70 percent of respondents said they have projects
currently under construction or planned in the next three years, a full three-fourths of those were
expansions or renovations.” (2016 Hospital Construction Survey, Health Facilities Management)
„„ The new model for hospitals is the medical center with a cluster of offices including beds, which
will deliver more of a patient’s needs.
„„ The number of outpatient facilities will continue to grow, pressed by the need to lower health care
costs and to improve health facility profits.
HEALTH CARE CONSTRUCTION PUT IN PLACE
Forecast as of Q3 2016
Source: FMI Research Services
DRIVERS:
Population change
younger than age 18
Population change
ages 18-24
Stock market
Government spending
Nonresidential structure
investment
10
FMI’s Construction Outlook
Education
Education construction increased by 5% in 2015 to reach nearly $83.5 billion in construction put
in place. We now expect 2016 will end on a lower note of just 3% growth. Similar to health care
construction, new schools will be greener and take more advantage of new materials and technology
to create a safer, brighter space for learning. However, there is also a darker side to the need for school
renovation and construction. Schools increasingly need to have security measures in place due to
increasing threats of terrorism and deranged people entering the school with weapons. There also
need to be funding solutions to improve the deplorable conditions in inner-city schools in depressed
areas like Detroit. In order to prepare students for future careers, all schools should include modern
technology or be renovated and updated for modern computing and collaborative environments.
TRENDS:
„„ Significantly less funding from federal government and states for K-12 schools.
„„ Enrollment growth of 2.5 million in the next four years.
„„ New designs for schools will be more flexible for changing classrooms and greater use of natural
light. Expect more use of modular building designs.
„„ Greater attention to energy reduction and green building technologies.
„„ Renovation and additions to current school buildings will continue to grow in comparison to new
school projects.
„„ Greater focus on safe schools, as the threat for shootings on campus continues to rise.
EDUCATION CONSTRUCTION PUT IN PLACE
Forecast as of Q3 2016
Source: FMI Research Services
DRIVERS:
Population change younger
than age 18
Population change ages 1824
Stock market
Government spending
Nonresidential structure
investment
11
3rd Quarter 2016 Report
Religious
We expect the growth rate for religious buildings will be 5% to reach $3.9 billion. With more people
working, there is more money available to support religious building, in some cases involving larger
building projects. After the current growth spurt, we expect slow growth will return to this sector.
Future uncertainty for growth is due to many changes in the religious landscape, including the
mix of religious faiths in America and fewer people who consider themselves regular churchgoers,
even if they still belong to a certain faith. Many new churches are small and established in existing
buildings like those found in vacated shopping centers. With all of these challenges, it still appears
that improvements in parishioners’ pocketbooks translate into higher tithes.
TRENDS:
DRIVERS:
„„ The lending environment continues to be a challenge for many congregations.
GDP
„„ Establishing a capital campaign is becoming increasingly common.
Population
„„ Many churches are seeing tremendous declines in contributions and tithes.
„„ PEW Research Center reports the share of people “who describe themselves as Christians has
dropped by nearly eight percentage points in just seven years, from 78.4% in an equally massive Pew Research survey in 2007 to 70.6% in 2014. Over the same period, the percentage of
Americans who are religiously unaffiliated – describing themselves as atheist, agnostic or ‘nothing
in particular’ – has jumped more than six points, from 16.1% to 22.8%.” (“America’s Changing
Religious Landscape,” PEW Research Center, May 12, 2015)
RELIGIOUS CONSTRUCTION PUT IN PLACE
Forecast as of Q3 2016
Source: FMI Research Services
Income
Personal savings rate
12
FMI’s Construction Outlook
Public Safety
Spending for public safety construction declined 8% in 2015 to $8.7 billion, and we expect a 5%
decline for 2016 to 8.3 billion. For 2017, we forecast a return to growth of 1%. The private prison
sector took a serious blow when the federal government recently announced the results of a long
investigation that showed: “Private prisons ‘simply do not provide the same level of correctional
services, programs and resources; they do not save substantially on costs; and as noted in a recent
report by the Department's Office of Inspector General, they do not maintain the same level of safety
and security,’” according to Deputy Attorney General Sally Yates. (CNN Money, August 18, 2016)
TRENDS:
„„ “Since 1999, the size of the private prison population grew 90%, from 69,000 prisoners in 1999 to
131,300 in 2014. The use of private prisons was at a maximum in 2012, when 137,200 inmates
(almost 9% of the total U.S. prison population) were housed in private facilities.” (“Prisoners in
2014,” Bureau of Justice Statistics, September 2015)
„„ The recent announcement by the Deputy Attorney General will only affect 5% of privately housed
prisoners among the “195,000 inmates in federal prisons.” However, it will likely set a trend for
states to review their own prison systems and privatization agreements. (Ibid.)
PUBLIC SAFETY CONSTRUCTION PUT IN PLACE
Forecast as of Q3 2016
Source: FMI Research Services
DRIVERS:
Population
Government spending
Incarceration rate
Nonresidential structure
investment
13
3rd Quarter 2016 Report
Amusement and Recreation
Amusement and recreation construction growth pole-vaulted to reach record heights with 19%
growth in 2015. That is the equivalent of more than 21 stadiums that cost a billion each, plus cost
overruns. For 2016, we expect the boom to take a breather, growing at just 8% to reach $21.5 billion.
Sports venues are promoted as job creators with the ability to revitalize many dilapidated areas around
a city. The market for amusement and recreation will continue to grow as large professional teams
try to keep up with the Joneses. With the addition of domes and retracting roofs as well as bars,
restaurants, shopping, luxury boxes and on and on, sports venues are creating the model for a future
of climate-controlled cities.
TRENDS:
„„ The Rams return to Los Angeles will mean a new home for the team. The recently announced
70,000-seat stadium for the Los Angeles Rams will be a mixed-use project in Inglewood, California. (prnewswire.com, July 14, 2016)
„„ The San Diego Chargers are negotiating a new stadium in the center of San Diego.
„„ Ohio Stadium is planning a $42 million renovation project.
„„ A dedicated soccer stadium is being built in Orlando for the Orlando City Soccer Club expansion
franchise. The opening is planned for the 2016 season.
„„ The Washington Redskins are looking at new stadium designs with over 10 years left on their
current lease.
„„ Competition in the gaming sector will draw business away from some existing gambling centers,
such as Atlantic City and Las Vegas, as well as from other public arenas.
AMUSEMENT AND RECREATION CONSTRUCTION PUT IN PLACE
Forecast as of Q3 2016
Source: FMI Research Services
DRIVERS:
Income
Personal savings
Unemployment rate
14
FMI’s Construction Outlook
Transportation
Transportation construction achieved a solid 8% growth in 2015, but we now expect it to slow to 1%
in 2016. The boom in petrochemical manufacturing plants, particularly in the Gulf Coast region, will
take advantage of the completed Panama Canal expansion and boost transportation infrastructure
in both the South and West to accommodate increased activity from Panamax vessels. The passing
of the FAST Act was seen as a welcome event for needed transportation infrastructure construction;
however, there are still many questions surrounding funding of the Act and new regulations.
TRENDS:
„„ According to the Association of American Railroads (AAR) report for September 7, 2016, “total
combined weekly rail traffic in North America was 703,721 carloads and intermodal units, down
4%. . . . North American rail volume for the first 35 weeks of 2016 was 23,157,141 carloads and
intermodal units, down 6.9% compared with 2015.”
„„ “The 2015 FAA forecast calls for U.S. carrier passenger growth over the next 20 years to average
2.0 percent per year, slightly lower than last year’s forecast. The sharp decline in the price of oil in
2015 is a catalyst for a short-lived uptick in passenger growth.” (FAA Aerospace Forecast Fiscal
Years 2015-2035)
TRANSPORTATION CONSTRUCTION PUT IN PLACE
Forecast as of Q3 2016
Source: FMI Research Services
DRIVERS:
Population
Government spending
Transportation funding
15
3rd Quarter 2016 Report
Communication
Communication construction put in place dropped from 19% growth in 2015 to 0% in 2016, but is
expected to recover to 4% in 2017 to reach $21.4 billion.
The trend for communications is likely to be more integration and mergers in order to capture
market share. The current trend is for building more data centers and beefing up security and privacy
against potential interlopers and severe weather events. The increasing need for data storage is not
driven just by corporate and government use. The trend continues to merge telecommunications
for entertainment and data that will be offered by a few competing service providers. Add to this
the growing internet of things (IoT) that will connect smartphones and computers to anything that
has a chip and the ability to connect to the internet such as automobiles, manufacturing equipment,
personal monitoring devices and kitchen appliances.
TRENDS:
„„ Communications infrastructure will continue to be challenged with keeping up with the technology as 4G moves to 5G and 4K video is already to move to 5K, pushing bandwidth and storage
capacity.
„„ “Mini towers” for increasing coverage and spectrum will proliferate rapidly in the next five years.
„„ Google’s Google Fiber arm is deploying high-speed gigabit connections in selected metro areas.
„„ Data security is critical for large businesses and governments in the face of potential disasters and
threats from hackers and foreign enemies.
COMMUNICATION CONSTRUCTION PUT IN PLACE
Forecast as of Q3 2016
Source: FMI Research Services
DRIVERS:
Innovation/technology
Global mobility
Population
Security/regulatory
standards
Private investment
16
FMI’s Construction Outlook
Manufacturing
Manufacturing construction took a heavy hit during the Great Recession, but it has more than caught
up as of 2015 with a whopping growth of 33% for the year and a more modest 2% growth expected
for 2016. In either case, new records are being set for manufacturing construction investment.
Currently, at just 75.4 for July 2016, manufacturing capacity utilization has yet to top the long-term
average of 78.5. Continued low energy prices will hold down capacity additions in the oil and gas
sector, but help those relocating or expanding in other areas of manufacturing, including the current
boom in the petrochemical areas. The completion of the Panama Canal expansion project is expected
to decrease costs and increase shipments from Gulf Coast ports between the U.S. and Asia.
TRENDS:
„„ With little change since last quarter, manufacturing capacity utilization rates are at 75.4% of capacity in July 2016, which was below the historical average of 78.5 (1972-2015).
„„ The U.S. Department of Commerce reports, “Shipments of manufactured durable goods in July, up
three of the last four months, increased $0.4 billion or 0.2 percent to $232.9 billion. This followed
a 0.5 percent June increase.” (August 25, 2016)
„„ “New orders for manufactured durable goods in July increased $9.7 billion or 4.4 percent to
$228.9 billion, the U.S. Census Bureau announced today. This increase, up following two consecutive monthly decreases, followed a 4.2 percent June decrease. Excluding transportation, new
orders increased 1.5 percent. Excluding defense, new orders increased 3.8 percent.” (U.S. Census
Bureau, August 26, 2015)
„„ The PMI for August 2016 was at 40.4% according to The Manufacturing ISM® Report On Business®.
MANUFACTURING CONSTRUCTION PUT IN PLACE
Forecast as of Q3 2016
Source: FMI Research Services
DRIVERS:
PMI
Industrial production
Capacity utilization
Durable goods orders
Manufacturing inventories
17
3rd Quarter 2016 Report
NONBUILDING STRUCTURES
Power
After declining sharply in 2015, losing 14%, we expect growth to improve 8% in 2016 to reach $93.9
billion for construction put in place. The power industry is in flux due to changing fuel supplies
using more natural gas and less coal as well as variable rates of growth in alternative energy sources
like solar and wind. Power plants must be updated to keep up with changing requirements as well
as to manage distributed generation sources. The power industry will continue to consolidate as the
average consumer reduces power use, but growth will be slow but steady in 2017 through our 2020
forecast horizon.
DRIVERS:
TRENDS:
„„ Power companies are placing greater emphasis on flexibility to respond to peak needs alongside
hydropower, solar and wind-generating facilities.
„„ According to The Edison Foundation, “The United States currently has enough solar capacity
installed to power approximately 4.6 million homes. Solar is the fastest-growing source of renewable energy in the U.S. Already it reduces carbon dioxide emissions by 23.5 million metric tons
each year—the equivalent of taking 4.9 million cars off the road.” (“Key Trends Driving Changes in
the Electric Power Industry,” The Edison Foundation, Institute for Electric Innovation, December
2015)
POWER CONSTRUCTION PUT IN PLACE
Forecast as of Q3 2016
Source: FMI Research Services
Industrial production
Population
Nonresidential structure
investment
18
FMI’s Construction Outlook
Highway and Street
Highway and street construction increased 7% in 2015 to $90.1 billion. FMI forecasts just 1%
growth for 2016 moving up to around 2% from 2017 through 2020. The Fixing America's Surface
Transportation (FAST) Act for highway and transportation funding removed some uncertainty for
highway funding; however, we do not expect a significant jump in spending over current levels. The
onus will still be on states and communities to find funding for many of their highway and bridge
repair needs, and funding for FAST is seen by many as tentative, as it is not based on a fuel tax.
TRENDS:
„„ ARTBA’s Transportation Investment Advocacy Center™ (TIAC) reports that, in the eight states that
voted on gas tax increases, legislators do not appear to have been punished politically for their
votes. The perception is that voters realize that something needs to be done to fund needed bridge
and highway repair and are willing to pay for it.
„„ According to Finance and Commerce, “About $163 billion is needed annually over a six-year
period for highways, bridges and transit systems, yet only about $105 billion is being invested, according to a December report from the American Association of State Highway and Transportation
Officials and the American Public Transportation Association.” (finance-commerce.com/2015/04)
HIGHWAY AND STREET CONSTRUCTION PUT IN PLACE
Forecast as of Q3 2016
Source: FMI Research Services
DRIVERS:
Population
Government spending
Nonresidential structure
investment
19
3rd Quarter 2016 Report
Sewage and Waste Disposal
Construction put in place for sewage and waste disposal construction grew 7% in 2015, but we now
expect it to slow to -3% to end 2016 before returning to a slow growth rate for 2017 through 2020. A
significant percentage of the work to replace or build new metropolitan sewage and waste disposal is
being done under court-ordered consent decrees. The EPA, in its recent “EPA National Enforcement
Initiative: Keeping Raw Sewage and Contaminated Stormwater Out of Our Nation's Waters” report
(March 2016) lists 38 cases going back to the earliest in 1978 up to today. The total “Estimated Cost
to Bring CSS (SSS) into Compliance” is $31,079,834,799, averaging $839,995,535 per case. That
figure does not include the costs to the EPA and municipal defendants for legal fees or fines, nor does
it include cost overruns to complete the projects. Only four of the cases have met final obligations,
and about a dozen won’t be completed for more than a decade.
TRENDS:
„„ Growth, driven by aging infrastructure and regulation, is on the horizon, but the length of the
horizon is still unknown. Slow water infrastructure markets in the aftermath of the recession continue to build the backlog of necessary work as existing infrastructure ages.
„„ In need of replacement and upgrades, the 16,000 wastewater systems nationwide discharge more
than 850 billion gallons of untreated sewage into surface waters each year.
„„ Combined sewer systems (stormwater and sewage) serve roughly 950 communities with about
40 million people. Most communities with CSOs are located in the Northeast and Great Lakes.
„„ The Clean Water State Revolving Fund (CWSRF) programs have provided more than $5 billion
annually in recent years to fund water-quality protection projects.
SEWAGE AND WASTE DISPOSAL CONSTRUCTION PUT IN PLACE
Forecast as of Q3 2016
Source: FMI Research Services
DRIVERS:
Population
Industrial production
Government spending
20
FMI’s Construction Outlook
Water Supply
Water supply construction grew 2% in 2015. However, growth is expected to drop by 4% by the end
of 2016 and return to just 1% growth in 2017.
In some regions of the nation, specifically California, water is the new oil. Like oil, one of the
concerns for water besides scarcity is storage and conveyance to the right place according to need.
More people will be asked to pay more for water as water becomes a scarcer commodity, considering
increased population, agricultural and industrial needs. Whether one believes in global climate
change or not, states will need to be strategic and proactive in both freshwater needs and sewage
disposal and recycling.
TRENDS:
„„ According to a GAO report, “after irrigation, energy production was the second-greatest concern
of state water managers in terms of affecting water available for other uses.” (“Fresh Water,” GAO,
May 2014) While new fracking operations have slowed due to low oil prices, water use will continue to be of concern, especially since much fracking work occurs in areas with lower water
supplies.
„„ Green construction practices, such as controlling runoff to help increase groundwater, will become
the norm for improvements and new construction.
WATER SUPPLY CONSTRUCTION PUT IN PLACE
Forecast as of Q3 2016
Source: FMI Research Services
DRIVERS:
Population
Industrial production
Government spending
21
3rd Quarter 2016 Report
Conservation and Development
Conservation and development construction grew 9% in 2015. We expect that growth to slow
to 5% in 2017. The president’s 2017 budget for the Civil Corp of Engineers allots $1.09 billion
for construction. “By program area, the 33 funded construction projects consist of 17 flood risk
management projects (two funded for completion), nine aquatic ecosystem restoration projects, six
commercial navigation projects (three funded for completion) and one hydropower project (funded
for completion).” (President's Fiscal 2017 Budget for U.S. Army Corps of Engineers Civil Works
released, PRNewswire, February 9, 2016, from U.S. Army Corps of Engineers.)
DRIVERS:
Population
Government spending
CONSERVATION AND DEVELOPMENT CONSTRUCTION PUT IN PLACE
Forecast as of Q3 2016
Source: FMI Research Services
22
FMI’s Construction Outlook
Construction Put in Place
Estimated for The United States
Millions of Current Dollars
3rd Quarter 2016 Forecast (based on Q2 2016 Actuals)
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Single-Family
109,984
133,668
171,837
194,091
233,049
246,945
258,425
267,312
275,029
288,176
Multifamily
Improvements*
17,821
124,842
25,758
116,631
35,169
122,210
46,250
134,519
57,533
149,673
61,776
155,187
64,476
157,800
65,916
161,391
67,583
162,971
70,474
165,974
252,646
276,057
329,217
374,860
440,255
463,908
480,700
494,619
505,582
524,624
RESIDENTIAL BUILDINGS
Total Residential
NONRESIDENTIAL BUILDINGS
Lodging
9,129
10,836
13,484
16,738
21,728
25,601
26,971
27,409
27,765
28,207
Office
36,011
37,800
37,979
46,582
55,188
63,883
67,002
69,458
70,893
71,776
Commercial
42,816
47,335
53,159
62,841
66,924
70,838
73,645
75,037
76,138
77,845
Health Care
40,204
42,544
40,689
38,647
40,734
41,043
43,090
45,974
49,271
52,094
Educational
84,985
84,672
79,060
79,681
83,517
86,400
90,462
96,273
102,431
107,419
4,211
Religious
4,239
3,846
3,590
3,386
3,667
3,857
3,919
4,039
4,125
Public Safety
10,407
10,431
9,506
9,437
8,729
8,313
8,387
8,751
9,092
9,496
Amusement and Recreation
15,995
15,480
15,207
16,773
19,878
21,498
22,658
23,192
23,680
23,814
Transportation
34,737
37,862
39,459
42,043
45,566
45,936
47,726
50,222
52,235
53,957
Communication
Manufacturing
17,685
40,559
16,165
47,741
17,783
50,548
17,298
58,648
20,507
78,178
20,567
80,057
21,414
83,234
22,465
85,785
23,449
88,135
24,100
90,110
336,767
354,712
360,464
392,074
444,616
467,993
488,508
508,606
527,214
543,029
Power
75,185
97,434
93,317
101,216
87,167
93,941
99,202
104,049
108,809
111,163
Highway and Street
79,322
80,546
81,364
84,220
90,068
91,272
93,181
95,878
97,886
99,410
Sewage and Waste Disposal
22,710
22,261
22,425
23,321
25,064
24,403
24,967
25,739
26,802
28,187
Water Supply
Conservation and Development
14,163
7,538
13,218
6,228
13,597
5,967
13,334
7,310
13,563
7,985
13,011
8,374
13,187
8,808
13,611
9,417
14,281
10,095
15,136
10,851
Total Nonresidential Buildings
NONBUILDING STRUCTURES
Total Nonbuilding Structures
198,918
219,687
216,670
229,401
223,847
231,001
239,345
248,695
257,873
264,747
Total Put in Place
788,331
850,456
906,351
996,335
1,108,718
1,162,903
1,208,553
1,251,919
1,290,669
1,332,400
*Improvements includes additions, alterations and major replacements. It does not include maintenance and repairs.
Construction Put in Place
Estimated for The United States
Change From Prior Year – Current Dollar Basis
3rd Quarter 2016 Forecast (based on Q2 2016 Actuals)
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Single-Family
-3%
22%
29%
13%
20%
6%
5%
3%
3%
5%
Multifamily
Improvements*
2%
3%
45%
-7%
37%
5%
32%
10%
24%
11%
7%
4%
4%
2%
2%
2%
3%
1%
4%
2%
Total Residential
0%
9%
19%
14%
17%
5%
4%
3%
2%
4%
RESIDENTIAL BUILDINGS
NONRESIDENTIAL BUILDINGS
Lodging
-22%
19%
24%
24%
30%
18%
5%
2%
1%
2%
Office
-5%
5%
0%
23%
18%
16%
5%
4%
2%
1%
Commercial
7%
11%
12%
18%
6%
6%
4%
2%
1%
2%
Health Care
2%
6%
-4%
-5%
5%
1%
5%
7%
7%
6%
Educational
-4%
0%
-7%
1%
5%
3%
5%
6%
6%
5%
2%
Religious
-20%
-9%
-7%
-6%
8%
5%
2%
3%
2%
Public Safety
-7%
0%
-9%
-1%
-8%
-5%
1%
4%
4%
4%
Amusement and Recreation
-6%
-3%
-2%
10%
19%
8%
5%
2%
2%
1%
Transportation
-9%
9%
4%
7%
8%
1%
4%
5%
4%
3%
Communication
Manufacturing
0%
-2%
-9%
18%
10%
6%
-3%
16%
19%
33%
0%
2%
4%
4%
5%
3%
4%
3%
3%
2%
-3%
5%
2%
9%
13%
5%
4%
4%
4%
3%
Power
-4%
30%
-4%
8%
-14%
8%
6%
5%
5%
2%
Highway and Street
-4%
2%
1%
4%
7%
1%
2%
3%
2%
2%
-13%
-2%
1%
4%
7%
-3%
2%
3%
4%
5%
-8%
5%
-7%
-17%
3%
-4%
-2%
23%
2%
9%
-4%
5%
1%
5%
3%
7%
5%
7%
6%
7%
Total Nonbuilding Structures
-5%
10%
-1%
6%
-2%
3%
4%
4%
4%
3%
Total Put in Place
-3%
8%
7%
10%
11%
5%
4%
4%
3%
3%
Total Nonresidential Buildings
NONBUILDING STRUCTURES
Sewage and Waste Disposal
Water Supply
Conservation and Development
*Improvements includes additions, alterations and major replacements. It does not include maintenance and repairs.
23
3rd Quarter 2016 Report
APPENDIX
CONSUMER PRICE INDEX
All Urban Consumers 12-Month Percent Change
FMI’s Construction Outlook
CONSTRUCTION UNEMPLOYMENT RATES
EMPLOYMENT AND UNEMPLOYMENT RATE COMPARISON
24
25
3rd Quarter 2016 Report
MONTHLY HOUSING SUPPLY
Federal Reserve Economic Data, https://research.stlouisfed.org/fred2
CONSTRUCTION AS A PERCENTAGE OF GDP
26
FMI’s Construction Outlook
CONSTRUCTION SPENDING AND NOMINAL GDP
VALUE OF PUBLIC CONSTRUCTION PUT IN PLACE – SEASONALLY ADJUSTED RATE
(Millions of dollars. Details may not add to totals due to rounding.)
Value of Construction Put in Place—Seasonally
Adjusted Annual Rate (Millions of Dollars)
Total Construction Put in
Place (July 2015)
% of Total Construction Put
in Place (Q3 2015)
Total Construction Put in
Place (Q3 2016 Forecast)
% of Total Construction Put
in Place (Q3 2016)
*Public Construction
$297,593
27%
$278,190
24%
*State and Local
$275,090
25%
$256,523
22%
*Federal
FMI Forecast: Private Construction Put in Place
FMI Forecast: Construction Put in Place
* from U.S. Census Bureau Construction Spending
$22,503
$811,125
$1,108,718
2%
73%
100%
$21,667
$884,460
$1,162,650
2%
76%
100%
CONFERENCE BOARD CONSUMER CONFIDENCE INDEX
Benefits
A Construction Market Forecast From
FMI’s Research Services Group Can:
____________________________________
„„ Supply the market-oriented, economy-driven dimension essential for preparing, implementing and monitoring strategic plans.
„„ Be a significant aid in defining, targeting,
implementing and monitoring other critical
corporate decisions, such as long- and shortterm sales goals or redirecting resources (i.e.,
on a geographic or a product-line basis).
„„ Provide the basis for estimating submarkets.
„„ Provide the basis for comparing performance
among markets.
„„ Provide the basis for identifying activities that
are beneficial or detrimental to performance.
Features
Each Standard Construction Market Forecast:
____________________________________
„„ Details construction put in place in three
residential building, 11 nonresidential building and five nonbuilding structure categories.
It covers the current year, eight previous
years and five forecast years. It is available for
any county in the U.S. or any combination of
counties, metropolitan statistical areas, states,
regions, etc.
„„ Includes both construction values and annual percentage changes. Delivery time depends on the size of the request but is usually
only a few days. It can be delivered in printed
or electronic form and in most major text or
spreadsheet formats. Graphs can be provided
at additional cost.
Basis
____________________________________
„„ Historical information in FMI’s standard
Construction Market Forecast is based on
building permits and construction put in
place data as provided by the U.S. Commerce Department. Forecasts are based on
econometric and demographic relationships
developed by FMI, on information from
specific projects gathered from trade sources,
and on FMI’s analysis and interpretation of
current and expected social and economic
conditions.
Other Reports
____________________________________
„„ Reports on state and federally financed
highway construction are available for most
counties or combinations of counties.
J. Randall (Randy) Giggard
Managing Director
Research Services
„„ Custom reports on a wide variety of construction-related topics can be prepared by
FMI.
„„ Reports are based on multiple sources and
are appropriate for preliminary analytical and
planning purposes but contain little or no
direct observation of the area described and
are not guaranteed by FMI to be accurate.
Randy Giggard is responsible for design,
management and performance of primary
and secondary market research projects
and related research activities, including
economic analysis and modeling,
construction market forecasting and
database management. Randy’s particular
expertise is in the areas of market sizing and
For more information,
call 919.785.9268.
About FMI’s Research Services Group
As the construction industry becomes increasingly competitive, market intelligence becomes an
important tool for the building industry. A more complete understanding of the market, market trends,
customer perceptions, buying practices, competitor profiles and other market influencers will enhance
craft labor studies.
Since 1953, FMI has provided consulting and training services specialized for the construction industry.
FMI’s market research includes both secondary and primary research designed to meet clients’ specific
needs. Both types of research are used to provide accurate assessments in a timely, efficient and concise
manner for clients.
Typical project work performed includes customer buying practices, competitive analyses, market-size
modeling, market forecasts and trends, channel performance analyses, customer satisfaction surveys and
sales performance evaluations.
modeling, competitive analysis, sales and
market performance evaluations, buying
practices and trends analysis.
Randy holds undergraduate degrees in
mechanical engineering from Southern
Illinois University and in English from
Illinois State University and a master's of
marketing and management policy from
Northwestern University.
T 919.785.9268
Email: [email protected]
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