AIA's Consensus Construction Forecast downgrades expectations for 2017 and 2018

Screenshot from the AIA's Consensus Construction Forecast, July 2017.

Screenshot from the AIA's Consensus Construction Forecast, July 2017.

Entering 2017, construction forecasters were quite optimistic about the near-term outlook for the industry. Not only was 2016 ending up with strong construction spending numbers—6 percent across the entire nonresidential building sector, paced by more than 10 percent in the commercial categories—but 2017 was expected to be the year that federal fiscal policy would provide even more momentum for this market. Tax reform and financial deregulation were going to unleash investment capital, and the repeal and replacement of the Affordable Care Act was going to reduce financial burdens on small businesses. To top it off, a trillion-dollar infrastructure program over the coming decade would directly undergird strong construction growth for the foreseeable future. 

Construction spending so far in 2017 has been fairly disappointing.

However, as of the mid-year 2017 update, the grounds of this euphoria are evaporating. Our economy has seen only about 2 percent growth (when annualized) over the first half of the year, and key elements of the Trump administration’s legislative agenda have made almost no progress. Both consumer sentiment as measured by the University of Michigan Consumer Sentiment Index, and business confidence as measured by the Conference Board’s CEO business confidence survey, are currently at levels below those entering 2017.

Construction spending so far in 2017 has been fairly disappointing. Commercial/industrial construction spending has increased just under 7 percent through the first five months of the year relative to the same period in 2016, as compared to over 10 percent growth for 2016 overall. While some slowdown was anticipated for 2017, it was expected to be offset by acceleration in the institutional sector. However, year-to date growth in spending for institutional buildings is at only 3 percent, up from the 1.6 percent of 2016 but well below expectations when the year began. 

As a result, the AIA Consensus Construction Forecast panel is predicting slower growth for the construction industry for the remainder of 2017 and through 2018. Overall spending for nonresidential buildings in 2017 is projected at just under 4 percent, compared to the 5.6 percent forecast at the end of 2016.  The commercial market is expected to perform largely as anticipated, with growth now forecast at 8.8 percent for the year, up from a projection of 8.3 percent entering 2017. However, both the industrial and institutional sectors have been marked down considerably. Industrial construction is currently projected to decline almost 7 percent, compared to a projected modest increase six months ago. Institutional construction now is seen as increasing 3.5 percent, compared to the 5.7 percent figure entering 2017.

Continue reading on