Economic Review and Forecast 2019-2020
by Mike Dahl, LASN
The Big Picture
Overall, an economic slowdown is forecast for the near future but there are some bright spots for the industry.
First, looking ahead, the economic think tank, the Conference Board, and the Organisation for Economic Co-operation and Development, both predict the U.S. GDP will grow 2% in 2020, not the best performance of late but still an expansion.
In construction economics, though total value put-in-place is off 2.0% year-to-year, the numbers are 3.2% above 2017's amount and 22.7% higher than five years ago according to the U.S. Census Bureau. In the nonresidential category, nine of the 16 major subcategories posted better totals year-to-year and 14 showed gains over both 2017 and 2014.
The latest residential report saw building permits running 14.1% above last year and starts registered an 8.5% gain year-over-year, which bodes well for landscape design work in 2020.
Dodge Data and Analytics' most recent report on total starts noted that through the first 10 months of the year, total construction starts are only off 4% compared to the same period last year.
"Concern over the health of the U.S. economy continues to play a key role in the pullback in starts over the past few months," stated Richard Branch, chief economist for the provider of construction industry analytics. "However, solid real estate fundamentals (such as vacancy rates) in addition to stable public funding will continue to support a modest level of construction activity across both public and private projects."
And in the latest Real Estate Roundtable's 2019 Q4 Economic Sentiment Index, the majority of commercial real estate executives that responded anticipate positive market conditions in the coming year as once again, solid fundamentals will offset economic challenges.
^ Based on predictions by Kiplinger.com, businessinsider.com and conference-board.org
Architecture Billings Index
The most recent ABI, a leading economic indicator for nonresidential construction activity, registered a score of 52.0, which beat last month's score by more than two points and bested the 50.4 put up in the same period last year (any score over 50 indicates billing growth). The new project inquiries tallied 57.9 and design contracts scored 52.9.
Construction Put in Place
Total Construction Spending
Chart: Total Construction Put in Place
As mentioned, the value of construction put in place is currently 2.0% lower than last year due to the private sector being off 4.6 percent while public construction has increased 5.6% year-to-year. The largest gain in this sector, 22.9%, was seen in the commercial subsector. The largest subsectors also saw growth from last year: highway and street at +9.3% and educational at +1.0%.
Residential Construction Spending
Chart: Residential Spending
Spending on residential construction is down 3.5%% over the same reporting period in 2018 though month-to-month did see a 0.6% improvement in the latest report. This was the third straight month that the seasonally adjusted annual rate grew.
Nonresidential Construction Spending
Chart: Nonresidential Spending
Total spending on nonresidential construction only saw a 12-month slip of 0.9% though the monthly report improved 0.5% in what has been an up and down cycle in the last six months. The most recent Dodge Momentum Index, a monthly measure of nonresidential building projects in planning, increased 6.9 due entirely to the institutional sector, which jumped 22.8% higher while the commercial sector lost 0.5%. The report has been shown to lead construction spending for nonresidential buildings by a full year.
Housing Statistics
Permits
Chart: Permits by Year
The 14.1% year-to-year growth for privately-owned housing units authorized by building permits was due to improvements in all three reported categories: single-family (+7.4%), two to four units (+20.5%) and five units or more (27.5%).
Starts
Chart: Starts by Year
To come in with an 8.5% gain year-to-year took an 8.2% rise in single-family units and a 10.7% increase in projects with five or more units. Regionally, the Northeast and Midwest did not fare well, -1.1% and -6.4% in total starts respectively, but the South experienced 15.6% growth and the West was up 6.8%
Completions
Chart: Completions by Year
This component showed year-to-year advances in the latest tally in total numbers (+12.4%), single-family units (+8.6%) and residences with five units or more (25.5%). Regionally, only the Midwest lost ground with total completions (-14.5%) and single-family completions (-11.2%)
New Home Sales
Chart: New Home Sales by Year
According to the Wells Fargo Economics Group, though sales of new homes fell 0.7% in the most recent monthly report, sales for the prior month were revised substantially higher, giving the past three months the strongest pace of this expansion as new home sales through the first 10 months of this year are running 9.6% ahead of their year-ago pace. The group credits this to lower mortgage rates and more focus by developers to build more affordable homes, adding "there also appears to be some increased migration from more expensive areas of the country to lower cost areas, with the South being the major beneficiary of this shift."
Existing Home Sales
Chart: Existing Home Sales by Year
These sales rose 1.9% month-to-month meaning resales are up 4.6% over the past 12 months. Purchases of existing single-family homes, which increased 2.1%, accounted for most of the gain while sales of condos & co-ops stayed flat for the second straight month. The South (+4.4%) and Midwest (+1.6%), reaped the monthly gains while the West (-0.9%) and Northeast (-1.4%) slipped. As for inventories, after expanding for nearly all of last year, they have now receded to historic lows. For example, the supply of single-family homes for sale dropped 4.3% on a year-over-year basis in the latest report; the fifth consecutive monthly decrease.
Final Words
"Although ongoing uncertainty over the direction of economic growth persists, a strong stock market and growing payrolls at U.S. businesses continue to generate more construction projects," said AIA chief economist Kermit Baker, PhD, Hon. AIA.
Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors stated bluntly, "We will not have a recession (in 2020). Every state is creating jobs. Some states are doing it faster than others, but we see job creation in every state."
Richard Branch, chief economist of Dodge Data and Analytics agrees. "Next year, will not be a repeat of what the construction industry endured during the Great Recession. Economic growth is slowing but is not anticipated to contract next year. Construction starts, therefore, will decline but the level of activity will remain close to recent highs."
^ Seasonally adjusted annual rate for last reporting period
**Publishers predictions
As seen in LASN magazine, December 2019.
