[NEWS TRACKER] 2020 Construction Starts Will Drop But Activity Level to Remain High

A 4% drop in construction starts is predicted for next year, but 2020 will not be a repeat of 2009 because the level of activity will remain high; plus other construction industry news on the Nov. 21, 2019, Construction News Tracker

Construction News Tracker is presented by Caterpillar and produced by ForConstructionPros.com.

2020 construction outlook

The 2020 Dodge Construction Outlook is predicting that U.S. construction starts will drop by 4% to a total of $776 billion. Dodge Data Chief Economist Richard Branch says that the recovery that began following the 2009 recession is coming to an end. The increase is due to continuing trade tensions and the lack of skilled workers; But, says Branch, 2020 will not become a repeat of 2009 because the level of activity will remain high as it has for the last three years.

Branch also predicts that the dollar value of residential building starts will drop 6%, and starts for nonresidential and nonbuilding construction will be off by 3%. Single-family home construction is expected to remain stagnant due to affordability and tight entry level building, while multifamily construction will continue to be slowed due to economic growth constrictions.

Materials costs to increase in 2020

That challenged outlook for 2020 continues from AGC Chief Economist Ken Simonson as he is predicting higher materials costs for contractors come next year. The latest analysis from the Bureau of Labor Statistics Producer Price Index by AGC finds no change for the year through September, although tariff imposition has affected imported materials from China. Simonson says the cost of lumber and gypsum used in home building is likely to increase in the next six months. Lumber and plywood costs were down some 10% through September even as tariffs hiked those prices 17%.

Simonson says the costs for steel, copper and aluminum are likely to see a slow increase minus any price shocks for those items. The largest cost item for contractors is labor, and those costs will continue to rise, says Simonson. He’s admittedly puzzled due to the umemployment rate now at its lowest in 50 years; and one would think wages would rise more quickly, but they are not.

Drug use high in construction industry

A troubling report out of the College of Global Public Health at New York University claims the construction industry has the highest drug use of any American work field. The NYU report published in the Journal of Drug and Alcohol Dependence says that of all occupations construction has the highest use of cocaine and marijuana as well as mis-used prescription opioids.

The dossier alleges that this illicit use leads to the highest incidence of injury and fatality rates across all U.S. industries due the hazardous nature of construction itself. The NYU report utilizes data back to 2005 and involved responses from 293,000 participants and compared construction with 13 other occupations.

Dodge Momentum Index rises in October

The Dodge Momentum Index for October has settled in at 152.6 an increase of 6.9% from a revised rate of 142.7, and its all pegged on the institutional category. The monthly measure of nonresidential building projects is the first report to deal with building a year in advance. Institutional planning moved up 22.8%, and the overall Index was forced higher by 6.7% from 2018. And all the projects are significant construction entities in the multi-million dollar range.

Elections good for infrastructure

The November 5th election nationwide saw voters in 19 states approved ballot measures strongly supporting transportation investment. Out of 305 state and local ballot measures 90% were adopted by voters with 270  initiatives approved generating some $9.6 billion in revenue spending. ARTBA is elated over the results and says it sends a big message to Capitol Hill that the general public overwhelmingly supports a national highway funding bill.

Another high speed rail in California

High speed rail is destined for southern California. The infrastructure and economic development bank has approved a $3.25 billion bond request from Virgin Trains to construct a rail line from Victorville, CA, to the Nevada state line  a distance of 135 miles.

It is the initial link of passenger service from Victorville to Las Vegas and to be operated as part of the California High Speed Rail Authority. Not to be confused with a proposed line between Los Angeles and San Francisco, it appears now that this high speed passenger service could become a reality.

States could be forced to giveback federal highway funding

The cost of rescission in federal highway funding next year could be a tremendous burden on states seeking to secure federal funding. As of September 30th, the total balance of state highway funding subject to rescission, or giveback, is $7.6 billion effective next July 1st which is $2 billion over the $5.3 billion level extracted from federal aid highway contract authority.

An example is Texas, which has an unobligated balance of $679 million. However, under federal funding calculations Texas really owes $960 million to the feds if rescission occurs a severe impact on transportation projects already on the books. All the other states face the same impact under the Federal Highway Administration rules. AASHTO is warning that once these dollars go away they cannot be invested in our nation's highway system.

In closing, success often comes from taking a misstep in the right direction.

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