The construction industry is experiencing deceleration compared to the strong economy of 2018, however expansion is still ongoing. This is according to the 2019 Dodge Midyear Update webinar, presented by Dodge Data & Analytics chief economist and vice president of economic affairs Robert Murray.
Construction starts, the full value of a project entered into the month in which work begins, peaked during the first quarter of 2018. In 2017, construction starts experienced a 7% gain, followed by a 3% increase in 2018. Murray pointed out that construction starts are flattening out in 2019, but at a high level.
“The tailwinds are providing good growth but not to the same extent of 2018,” he said. “The economy is still relatively strong.”
One of the big surprises for 2019 was that the long-term interest rates have stayed low. While trade tensions with Canada and Mexico seem to have eased, according to Murray, increased trade tensions with China have contributed to uncertainty. Employment numbers have continued to be healthy, with the unemployment rate at 3.7%. However the labor market remains tight.
Murray explained that the banking sector is wary about overbuilding for multifamily housing, and as a result it has reported tighter lending standards.
The producer price index (PPI) for aluminum mill shapes is retreating from its heightened numbers in 2018. The PPI for this material grew 12.2% in 2018. For the first seven months of 2019 compared to the first seven months of last year, the PPI has decreased 0.9%. Flat glass grew 2.3% last year and is up 0.8% when comparing the first seven months of this year to the same period in 2018.
“We’re seeing a generally flattening price picture. Prices have increased but they’re not increasing at the same rate of what took place in 2017 and 2018,” said Murray.
While multifamily housing rebounded in 2018 due to the stronger economic environment, the estimate for all of 2019 is down 10%. It peaked in 2018.
“Multifamily high rises are going up in major metropolitan areas across the country,” said Murray, adding that New York is leading the market.
The office segment of commercial construction has advanced in large part due to the surge in data center construction last year. Murray expected data center construction to settle back this year, but it hasn’t happened.
There hasn’t been much expansion in the retail segment, however many are experiencing expansions. Retail spaces are being built much more in mixed use applications rather than in larger malls.
Murray explained that the construction industry is not seeing strong rates of growth this year. While deceleration is happening he considers the level of activity to be fairly healthy. He reported that economists expect a slowdown for 2020 that should be modest in scope.