Associated Builders and Contractors Inc.

ABC Forecasts Nonresidential Construction Spending Will Increase in 2014

Associated Builders and Contractors’ (ABC) 2014 economic forecast for the U.S. commercial and industrial construction industry is consistent with ongoing recovery in nonresidential construction spending next year. However, the recovery remains constrained by a lack of conviction regarding overall macroeconomic and budgetary prospects in the United States.

“ABC forecasts nonresidential construction spending will expand in the high single digits next year,” said ABC Chief Economist Anirban Basu. “According to ABC’s model, next year’s growth segments include commercial construction (about 5 percent), health care (nearly 7 percent), lodging (8 percent), communications (5 percent to 6 percent) and manufacturing (3 percent to 4 percent).

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“ABC expects publicly financed segments to continue to be hamstrung by reluctant state and local government budget officials,” Basu said. “Certain private categories, however, are set to expand meaningfully during the year ahead, including health care (utilization will be on the rise), power (a consistently strong segment in recent years), commercial (the result of protracted periods of consumer spending growth) and lodging (hotel occupancy continues to rise).

“Even slow growth ultimately unlocks construction opportunities. Ongoing recovery steadily produces lower vacancy rates, rising rents and more comfortable lenders,” said Basu. “Growth eventually produces higher interest rates, and that may begin to serve as a more meaningful speed governor in late 2014 or in 2015.

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“After only expanding an estimated 2.9 percent in 2013, the global economy is expected to accelerate to 3.6 percent next year,” Basu said. “All things being equal, this will raise the level of demand for construction inputs, which in turn will accelerate materials price increases, though not to the extent experienced in 2004, 2005 and 2007.

“Among the states experiencing rapid construction job growth are energy-producers such as Texas, North Dakota and Louisiana,” said Basu. “A number of communities hit hard by the downturn, including California, Arizona, Georgia and Florida, have been adding construction positions rapidly, with the housing market stabilizing and household formation accelerating.”

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"ABC forecasts U.S. economic growth of around 2 percent again next year (1.8 percent to 2.6 percent),” Basu said. “That should help re-ignite the nation’s housing market, which in turn will help restore consumer confidence and allow America to possibly approach 3 percent growth by the final two quarters of 2014. Uncertainty stems from the ongoing implementation of health care reform, including the enforcement of the employer mandate. Budget squabbles and news emerging from abroad also will serve to constrain growth. However, if Congress can create substantially greater transparency regarding America’s federal budgetary future early next year, then 2015 could end up being a breakout year for the United States and ultimately for nonresidential construction.”

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