Big Items and Big Risks | The Economic Outlook for the Construction Industry
Published on by Eric Goodman in Construction
In its latest economic update, Construction Industry CPAs and Consultants (CICPAC) outlined major factors and risks the construction industry faces. Real GDP, labor costs, and the availability and price of raw materials top the list – but a few others may come as a surprise.
We’re hitting the highlights – for the full story, download the full report, free of charge from Barnes Dennig and CICPAC.
Real GDP
Earlier this fall, the general consensus was that Q3 GDP would come in under 2.0% and possibly dip as low as it did in Q1 of this year. But then we saw a shift, as GDPNow began indicating a growth rate over 3.0%. At least in the first iteration, GDP numbers for the quarter came in at 2.8% – closer to the optimistic view.
Labor situation and costs
Though not quite the crunch it’s been over the past few years, labor remains a top industry concern, and labor costs have continued increasing over the past 12 months, with the cost of labor rising 3.8% and the cost of benefits up 3.3%. Union compensation rose by 5.8% and non-union compensation rose 3.4%. The overall Employment Cost Index reading for the year was 163.6 – up over last year. And while across multiple industries, wages have been rising faster than overall inflation, many people are still behind where they were in terms of purchasing power four years ago.
Raw materials
While not even in the ballpark of record highs (or even recent ones), raw material prices have been climbing – affecting copper, aluminum, steel, and lumber. The biggest driver is increased demand in some key markets (the US, Europe, and China to a degree). There’s a longer-term concern revolving around how much of the incoming administration’s tariff policy will be implemented. Still, retaliatory action of some sort is expected from affected nations that produce key commodities and raw materials.
Manufacturing
The latest manufacturing data shows a drop, but isn’t at what many would consider a crisis level at this point. CICPAC points out that there are differing versions of the purchasing managers’ index; CICPAC uses the one produced by S&P Global, as it has a broader sample than the one used by The Institute for Supply Management. The S&P Global assessment’s current reading is 48.5, up from 47.3 last month – improved, but still in mild contraction. 15 nations around the world are below the 50 line and in contraction, according to the report.
Running down the risk factors
Geopolitics, inflation, and trade tensions and rivalries are the biggest risks cited in this latest report. Middle East threats and the impact of recent hurricanes were expected to drive oil prices higher, but at this point they remain in the low $70s per-barrel. A continuing trade war with China could intensify as well as exacerbate strains between the US and European trading partners.
A global trend toward protectionism will have an impact on global trade, with the US heading more towards isolationism and the threat of high tariffs on many trading partners. Europe has been moving in a similar direction, with higher regulatory barriers – and many nations are expected to retaliate against high US tariffs. Keep a close eye on the relationship between the US and Mexico and the differences of opinion on trade – and there’s also concern regarding the US trade commitment to Taiwan and South Korea.
Download the report
Those are some of the key items covered in the report, which also includes macroeconomic viewpoints on policies, growth, the impact of debt and deficit, the regional MSA Construction Potential Index, and much more. Download your free copy today – and if you have questions or would like to discuss how the economic climate may be impacting your construction company, contact us. Our team of top construction industry pros is here to help.
