Beck Think

An Economist’s Outlook on 2016 Construction

  • Jan 14, 2016

This week Ken Simonson, Chief Economist at The Associated General Contractors of America, spoke on the Construction Outlook for 2016 at the first session of the BeckThink Speaker Series. Ken has been with the Association since 2001 and has 40 years of experience analyzing, advocating and communicating on economic and tax issues. His weekly summary of economic news relevant to construction, The Data DIGest, goes to 47,000 subscribers.

With the U.S. construction industry employing over six million employees and creating nearly $1 trillion worth of structures each year the industry can impact the national and global economy in a number of important ways. We also know that construction affects your organization in a number of ways.

Ken shared these highlights on the trends and forces that shape the economic impact of the national construction industry.

 Construction spending:

  • The multi-family sector could see up to a 12 percent increase in spending on construction in 2016. A number of factors contribute to this including high rent growth as a result of low vacancies and the preference of millennials for city living.
  • The power sector should see a surge in spending in gas-fired plants along with pipelines into 2018. Cutbacks in spending on coal-fired plants, oil and gas fields have hit bottom.
  • Manufacturing will see spending growth in petrochemical plants and transportation equipment facilities, but cuts in plants tied to farming, mining or exports.
  • Higher education enrollment is shrinking, so colleges will need fewer dorms and classrooms to be built in 2016 and spending will be lower. In the K-12 sector more children are living in cities, and schools that were previously closed will reopen to accommodate this need.
  • Healthcare facilities will become smaller in 2016 as the popularity of urgent care, outpatient surgery centers rises.
  • We’ll see more spending on retail establishments that will be included in mixed-use buildings instead of in stand-alone stores or shopping centers. The consumer switch to buying online will continue in the coming year.
  • While more businesses are investing in new offices, the amount of office space per employee will keep shrinking with growth mainly in cities and not in suburban office parks.

Employment:

Construction employment peaked in 2006 at 7.7 million people employed in the sector. The sector saw a decrease when the recession hit in 2008 and has been in recovery ever since, peaking at 6.5 million employees at the end of 2015. Many positions continue to be hard to fill with carpenters being the hardest hourly positions to fill and Project Managers proving difficult to hire on the salaried side. Contractors will increase base pay and the use of labor-saving equipment and lean construction methods to combat this hiring trend.

Materials spending:

Prices for gypsum products have risen over the last three years, but are expected to drop over the next few months of 2016. The price for flat glass will remain steady while the cost for copper, brass and aluminum will decrease. Concrete product prices will see a steady incline in 2016.

More information on these and other trends, including state-specific trends, is available in Ken’s full presentation.