Lackluster growth in construction starts and spending this year has caused some industry experts to sound the alarm of an impending slowdown in the construction cycle. However, Dodge Data & Analytics Chief Economist Robert Murray attempted to quell those fears during the release of the much-anticipated 2017 Dodge Construction Outlook on Oct. 20 during the firm’s Outlook 2017 Executive Conference held at Maryland’s National Harbor.
Murray said during the event that he believes the industry is “moving into a more mature phase of expansion,” rather than entering a period of decline. He noted that the current construction recovery only kicked into high gear in 2012, well after the overall economy started to rebound. “This is a very measured upturn,” he said. “It’s not a boom.”
Murray predicted that the construction industry’s period of growth will continue into 2018, then a cyclical slowdown will emerge in 2018 and 2019. Despite the inevitable downward trend in the cycle, Murray noted that the slow nature of the recovery means that the subsequent decline will also be gradual. “We don’t have that boom and bust situation [that was] present in the past decade,” he said. “When the slowdown ultimately comes, it’s not going to be a repeat of what we experienced in 2009.”
He pointed to three primary areas of change that the industry should keep an eye on in the coming year:
– Growing support for infrastructure spending: Both presidential candidates have called for a major boost in funding for infrastructure, as the issue has gained widespread attention across the U.S. Murray said he views the public works sector as “one of the supportive elements for keeping this expansion going a bit longer.”
– Extreme volatility in the electric power and gas plant sector dragging down the overall picture: This segment of the construction industry has seen huge spikes and significant plummets in the past few years, with that trend expected to continue in 2017. Murray said the sector is so turbulent that he believes a clearer picture of the industry’s growth emerges when electric power/gas plant construction is removed from the equation.
– Impact of rising interest rates will not be immediate but significant in a few years: The Federal Reserve is expected to raise short-term interest rates once this year at its December meeting and twice in 2017, according to Murray. Despite the impending rate hike, he noted that the increases are moderate and will not impact the construction industry immediately. Murray predicted that interest rates will create “more of a dampening element by 2018, which will lead to a slowdown in overall economic activity in 2018 or 2019.”