The Building Tradesman Newspaper

Friday, August 24, 2018

The architects like what they see

By The Building Tradesman

WASHINGTON, D.C. - Construction spending is projected to grow through 2019, according to a  consensus forecast released Aug. 8 by the American Institute of Architects (AIA).

Spending on nonresidential buildings nationally increased only modestly last year, barely outpacing inflation in building costs. Halfway through the seventh year of continuous growth for the cyclical construction industry, 2018 might have looked to be the year that the industry would enter another recession. However, when polled at the beginning of this year, the AIA Consensus Construction Forecast Panel—consisting of leading economic forecasters— instead saw an acceleration in activity, projecting 4.0 percent growth in 2018 and a nearly equal 3.9 percent in 2019.

“At the halfway point of the year, this panel is even more optimistic,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “Their forecasts have been marked up to 4.7 percent growth in spending for this year and an additional 4.0 percent in 2019. If these projections materialize, by the end of next year the industry will have seen nine years of consecutive growth, and total spending on nonresidential buildings will be 5 percent greater—ignoring inflationary adjustments—than the last market peak of 2008.” 

The AIA Consensus Construction Forecast panel is comprised of Dodge Data & Analytics, Wells Fargo Securities, LLC, IHS Economics, Moody’s, ConstructConnect, Associated Builders & Contractors, and FMI. The forecast has been conducted for the past 18 years.

Reinforcing the architects' good feelings are a highly optimistic survey about industry growth released last month by The Association of Union Constructors, and the ongoing, strong construction activity statistics throughout the U.S. highlighted every month by the Associated General Contractors.

Steady industry also has momentum 

The Dodge Momentum Index for U.S. construction moved 1.4 percent higher in July to 169.8 (2000=100) from the revised June reading of 167.3.  Released on Aug. 8 by Dodge Data and Analytics, the Momentum Index is a monthly measure of the first report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year.  

The headline Momentum Index has risen steadily since its slippage during the third quarter of 2017.  Stronger economic growth and the support from still-healthy real estate market fundamentals (occupancies and rents) have contributed to these gains for construction projects at the planning stage, which has yet to be restrained by the uncertainty arising from higher material costs and higher interest rates.