Every quarter, FMI Corporation — the largest provider of management consulting, investment banking, and research to the construction industry — releases an analysis of construction spending in market segments across the U.S. and Canada. These reports are an excellent way to quickly glean insights into the current and future state of construction.
Here, we’ve broken down some of the top takeaways from the most recent edition, “FMI’s North American Construction Outlook: Second Quarter 2019 Report.”
Key statistics at a glance
• Total construction spending for the U.S. is expected to grow by 1% in 2019, compared to 4% in 2018.
• Residential construction has dropped across the board, with decreases in spending on single-family residential (-5%), multi-family residential (-1%), and improvements (-4%).
• Nonresidential construction is seeing mixed spending across market segments.
Amusement and recreation (+3%)
Public safety (+7%)
• Spending on nonbuilding structures has been notably strong.
Highway and street (+6%)
Sewage and waste disposal (+6%)
Water supply (+8%)
Conservation and development (+9%)
• Only one segment — sewage and waste disposal — was upgraded this quarter into FMI’s growth category. Educational and manufacturing have both been downgraded from growth to stable.
What’s going on with residential construction?
According to the analysts at FMI, rising home prices, rising debt levels, and slow wage growth have resulted in significant affordability concerns in single-family housing across the country. On the other hand, while multi-family construction in major urban markets has cooled, prices remain attractive relative to affordability constraints in single-family homes.
Why are some nonresidential sectors down?
Regarding the slight drop in construction spending for lodging, FMI argued that there are several key factors at play, including competition from non-traditional forms of lodging (e.g. Airbnb), recent capacity additions, and slower employment growth.
As to the significant drop in religious spending, FMI cited declining church attendance and declining share of Americans donating to religious institutions as the major factors.
Why are some nonresidential sectors thriving?
Office construction is currently up a whopping 6%, a trend FMI attributes to the shift away from major corporate campus projects and toward public office spending. Public safety projects also continue to grow as tax revenues rise and local bond support increases. Finally, transportation is booming due to the demand for urban connectivity and high-growth populations in major metropolitan areas.
Why is spending on nonbuilding structures so strong?
Population growth and government investment are responsible for the influx of spending in market segments like highway and street, water supply, and conservation and development. Notable government investments affecting these numbers include:
- Passage of America’s Water Infrastructure Act in late 2018 and reauthorization of the Water Infrastructure Finance and Innovation Act (WIFIA) provided a substantial boost in funding.
- Introduction of the Water Quality Protection and Jobs Creation Act of 2019 to support further spending.
- Significant $2.75 billion flood control effort in North Dakota represents the first P3 for the U.S. Army Corps of Engineers (USACE).
- USACE spending is being aided from various sources, including a recent 2019 disaster relief bill, the 2019 federal spending package, and the 2018 Consolidated Appropriations Bill.
Check out the full report
For a deep dive into these findings, a look at the numbers in Canada, and analysis about what it all means for the construction industry, download “FMI’s North American Construction Outlook: Second Quarter 2019 Report.”