For at least the second year in a row, U.S. construction industry economists predict moderate growth during the year ahead – but this time around, more positive signs are evident. The U.S economy is showing signs of life with consumer spending helping to boost the GDP more than 4 percent in the third quarter of 2013. Additionally, a budget agreement reached in December should avoid another government shutdown. However, the need to pass transportation funding legislation to replace Moving Ahead for Progress in the 21st Century (MAP-21), which expires on Oct. 1, 2014, injects some uncertainty into construction industry forecasts.
"We see 2014 as another year of measured expansion for the construction industry," said Robert Murray, McGraw Hill Construction's vice president of Economic Affairs. "Against the backdrop of elevated uncertainty and federal spending cutbacks, the construction industry should still benefit from several positive factors going into 2014. Job growth, while sluggish, is still taking place. Interest rates remain very low by historical standards, and in the near term the Federal Reserve is likely to take the necessary steps to keep them low. The bank lending environment is showing improvement in terms of both lending standards and the volume of loans. And, the improving fiscal posture of states and localities will help to offset some of the negative impact from decreased federal funding."
Murray predicts that total U.S. construction starts for 2014 will increase 9 percent compared with 2013, with residential and commercial building leading the way. He forecasts a 5-percent decrease in public works construction.
Associated Builders and Contractors (ABC) Chief Economist Anirban Basu also expects publicly financed sectors to be hampered by "reluctant state and local government budget officials."
But analysis by Deltek, a provider of enterprise software and information solutions for professional services firms and government contractors, indicates that state revenues and budgets are poised to increase in Fiscal Year (FY) 2014. "In many states, transportation took a big hit during the recession," Deltek Principal Research Analyst Chris Cotner reported. "Aside from a small lift from federal stimulus funds in 2011, transportation has remained relatively flat since 2010. States indicate that transportation spending will experience the largest percentage increase of all verticals, rising 15.0 percent in FY 2014. In terms of dollar value, the transportation gains are only second to those in health care and social services, increasing $18.2 billion to $139.4 billion overall.
Associated General Contractors of America (AGC) officials prompted Congress and the administration to keep public construction from returning to its recent slump by quickly completing Water Resources Development legislation that has already passed both houses and by passing a new surface transportation bill next year, including provisions to adequately fund the nearly depleted federal Highway Trust Fund.
"If Congress can act in a bipartisan way on transportation funding as it did on the Water Resources bill, it can avoid a cliff-like drop in highway spending," said Stephen E. Sandherr, AGC's CEO.
The American Road & Transportation Builders Association (ARTBA) expects the overall U.S. transportation infrastructure construction market to increase 5 percent in 2014. Double-digit growth in airport runway and terminal work, a 6-percent increase in bridge and tunnel construction, and 5-percent or greater growth in total investment in waterways and ports and heavy and light rail will lead the way, according to ARTBA Chief Economist Alison Premo Black, Ph.D.
"Bipartisan political support for significantly increased transportation investment has been seen in a number of bell-weather states this year, including Pennsylvania, Virginia, Ohio, Maryland, and Massachusetts," Black said. "Wyoming and Vermont passed gas tax increases for expanded investment. Eighty-five percent of the 2014 transportation investment ballot initiatives passed. And the public-private investment market is picking-up with the expansion of the federal loan guarantee program."
ARTBA's 2014 forecast for transportation modes other than roads and highways includes the following:
- Bridges and tunnels – Bridge and tunnel construction is expected to grow from $28.5 billion in 2013 to a record $30.1 billion next year. ARTBA said large projects in 10 states – California, Florida, Illinois, New Jersey, New York, Pennsylvania, Texas, Kentucky, Virginia, and Washington – will account for about half of U.S. market activity in this sector.
- Ports and waterways – The port and waterway construction market, which has grown by a third since 2011 in anticipation of increased sea trade through the Panama Canal starting in 2015, is expected to grow another $100 million to a total of $3.0 billion next year. The top market states will be California, Florida, Illinois, Louisiana, Mississippi, New Jersey, New York, Texas, Virginia, and Washington.
- Airport runways and terminals – The total value of airport runway and terminal construction is expected to increase 17 percent to $14.7 billion in 2014, ARTBA forecasts. Market-driving states will include Arizona, California, Colorado, Florida, Georgia, Illinois, Massachusetts, New York, Ohio, Tennessee, Texas, Utah, Virginia, and Washington.
- Light rail, subways, and railroads – The domestic light rail, subway, and railroad construction markets will continue to see growth in 2014, ARTBA said. Subway and light rail work will grow 5 percent to $7.9 billion from $7.5 billion. Heavy rail investment, largely by Class 1 freight railroads, will increase 8 percent to $12.6 billion from $11.6 billion in 2013. Increase in demand to transport goods, including shale and crude oil, as well as multi-modal improvements for better port-rail connections, are driving higher levels of railroad investment, ARTBA said. Based on recent state and local government contract awards, states with key projects are California, Colorado, Washington, D.C., Florida, Illinois, Massachusetts, Minnesota, New Jersey, New York, Oregon, Pennsylvania, Texas, and Washington.
In the residential and nonresidential building sectors, McGraw Hill Construction predicted that single-family housing construction will increase 26 percent in value and 24 percent in the number of units, while multifamily housing will increase 11 percent in value and 9 percent in units. Commercial building is forecast to increase 17 percent in 2014, compared with 2013, led by warehouses and hotels, with stores and office buildings "picking up the pace," McGraw Hill reported.
"The 2014 picture bears some similarity to what's taking place during 2013, with single-family housing providing much of the upward push; multifamily housing showing a slower yet still healthy rate of growth after four years of expansion, and commercial building gradually ascending from low levels," McGraw Hill's Murray said. "One change that's expected for 2014 is that institutional building will no longer be pulling down nonresidential building and total construction."
ABC's Basu predicted that within the nonresidential building sector, 2014's growth segments will include commercial construction (5 percent), health care (7 percent), lodging (8 percent), communications (5 to 6 percent), and manufacturing (3 to 4 percent).
"Even slow growth ultimately unlocks construction opportunities," Basu said. "Ongoing recovery steadily produces lower vacancy rates, rising rents, and more comfortable lenders. Growth eventually produces higher interest rates, and that may begin to serve as a more meaningful speed governor in late 2014 or in 2015."
The Portland Cement Association (PCA) said that it is possible that all sectors of construction – residential, nonresidential, and public – could experience growth in 2014. "While the growth will be broad based, half of it anticipated for 2014 will come from residential construction activity where there is the largest amount of pent-up demand. The commercial and institutional sector will contribute another 25 percent," PCA reported.
Edward Sullivan, PCA group vice president and chief economist, said that the "trough point" for roadway construction was reached in 2013. "Improving state finances could provide surpluses by 2015 that states can apply to neglected infrastructure spending," he said.
Proliferation of "futuristic" technologies – Significant strides were made during the last year in terms of adoption of mobile devices for design, construction, and facilities management and cloud computing for collaboration and improved workflows throughout the project lifecycle. Industry players that do not adopt these technologies in 2014 face losing project bids and isolating themselves from "futuristic" technologies that by 2020 will be realities. Beyond driverless cars, these include Google Glass and 3D printing, which Microdesk anticipates will have important implications for the development of efficient, cost-effective, and manageable infrastructure in the future.
Universality of public engagement – In 2014, the AECO industry will make a concerted push to employ technologies such as simulation and fabrication for smarter, more efficient design processes that in turn will revitalize the nation's existing infrastructure. With the movement toward smarter cities, Microdesk predicts the penetration of gamification in the AECO industry to make both professionals and citizens fully intelligent about the buildings they're in and roads they're driving on.
Necessity of building standards – While adoption of advanced technologies such as BIM is accelerating, the need to reduce construction costs and do more with limited funds will prompt further adoption. In the absence of government mandates, owners are now acting as drivers for change, using BIM to streamline construction and facilities management. In 2014, this trend will extend to developers of urban projects and large corporations, prompting a bottom-up movement that will then move to more of the nation's cities.
"The AECO industry is at a turning point, where it is more important than ever to keep an open-minded view of the opportunities that technology provides to create collaborative and efficient processes in the development of key infrastructure," said Michael DeLacey, president of Microdesk. "There are both big opportunities and serious challenges on the horizon. We predict that 2014 will be a pivotal year in which the groundwork will be laid for significant breakthroughs, including the possibility of driverless cars on our nation's highways within the next six years. The need for funding and government leadership to establish the infrastructure required to support these advancements is critical."