Industry forecast: Breaking down the 2019 Dodge Construction Outlook

According to the report, total construction starts in 2019 will rise to $808.3 billion, up from $806.8 billion in 2018. In dollar terms, nonresidential building will stay at its current level, residential building will decrease 2%, and non-building construction (highways, bridges, environmental public works, etc.) will increase 3%, the report found.

This stabilization follows increases ranging from 11% to 14% each year from 2012 through 2015, 7% increases in both 2016 and 2017, and 3% in 2018, according to the report.

As laid out by Dodge Data & Analytics, construction segments will see the following changes:

Single-family housing
Prediction: Down 3%
Why? A decline in demand due to mortgage rates and reduced tax advantages for home ownership

Multifamily housing
Prediction: Down 6%
Why? Anticipated erosion in market fundamentals of occupancies and rent growth

Commercial building
Prediction: Down 3%
Why? Rising vacancy rates as the economy slows, slightly dampening construction

Institutional building
Prediction: Up 3%
Why? Funding from numerous school construction bond measures; rebound in healthcare projects; sustained starts in airport terminal and amusement-related projects

Manufacturing plant construction
Prediction: Up 2%
Why? Investment in new plant capacity encouraged by cuts in the corporate tax rate

Public works construction
Prediction: Up 4%
Why? Greater funding for transportation projects from the omnibus federal appropriations bill passed in March

Electric utilities and gas plants
Prediction: Down 3%
Why? New generating capacity continues to come on line, dampening capacity utilization rates for power generation.

According to Construction Dive, material prices rose almost 9% from May 2017 to May 2018 — the biggest annual increase in seven years. Additionally, recent U.S. tariffs on Chinese goods have the potential to drive material prices up and increase inflationary pressures.

However, in the presentation of this year’s report, Dodge’s Chief Economist Robert A. Murray argued that these headwinds shouldn’t draw concern for now.

“There are, of course, mounting headwinds affecting construction, namely rising interest rates and higher material costs, but for now these have been balanced by the stronger growth for the U.S. economy, some easing of bank lending standards, still healthy market fundamentals for commercial real estate, and greater state financing for school construction and enhanced federal funding for public works,” he said.

It seems clear that the 2019 construction year will see a slight shift from the commercial and residential building highs of the past several years to a focus on improving the country’s infrastructure and public buildings. This is an expected change and a rational response to current needs in the U.S.  However, these shifts appear to balance out to a near net zero impact on the country’s construction spend overall.

It’s important to remember that these statistics are merely informed predictions — not certainties. However, in a world rife with headlines predicting recession with little basis in concrete fact, it’s reassuring to know that the experts believe 2019 will continue to be a strong year for the construction industry.