Associated Builders and Contractors (ABC) Chief Economist Anirban Basu predicts stability for the construction industry’s economy and expanding nonresidential construction spending in 2018.
Indicators suggest the U.S. economy will enter 2018 with substantial momentum. Corporate earnings remain healthy. Global growth is accelerating. Consumers are upbeat. Tax cuts could fuel faster business spending.
While construction project backlog and contractor confidence remain high heading into the new year, Basu warns there are risks to the 2018 outlook as a number of potential cost increases could come into play.
“With wage pressures building, healthcare costs surging and fuel prices edging higher, inflation is becoming more apparent,” Basu says. “That could translate into some meaningful interest rate increases in 2018, which all things being equal is not good for construction spending. The stock market’s performance has been simply brilliant. But what goes up can go down.”
Basu adds that asset prices might head in a different direction in 2018, including commercial real estate prices. Segments like hotels, office buildings and apartments have helped to fuel construction spending in recent years. If the value of properties begins to stagnate or worse, construction spending momentum will eventually wind down. The impact of this may not be felt in 2018, however, but in out years, Basu explains.
“For now, there is plentiful momentum,” Basu says “A recent reading of the Conference Board’s Index of Leading Economic Indicators suggests that the U.S. economy will enter 2018 with substantial momentum. Corporate earnings remain healthy. Global growth is accelerating. Consumers are upbeat. Tax cuts could fuel faster business spending. All of this suggests that the construction recovery that began in earnest in 2011 may have a few more birthdays ahead.”
For more information, Basu talks about his forecast in a recent webinar.