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Dr. Bernard Markstein of Reed Construction DataIt’s been a rocky few years for our industry and the economy as a whole. To find out what to expect from the construction industry in 2013, we went to respected economist Dr. Bernard Markstein.

Chief Economist for Reed Construction Data, Dr. Markstein is well known for his work as Senior Economist and Vice President of Economic Forecasting and Analysis for the National Association of Home Builders (NAHB). He has provided analysis on national and regional housing issues, tracking developments, trends in the multifamily housing market and forces affecting building materials prices.

With extensive interview experience in TV, radio and print media, Dr. Markstein has appeared on Bloomberg TV, CNBC, Fox Business News, and Nightly Business Report (PBS) and has been quoted by the New York Times, Business Week and the Wall Street Journal.

Reed Construction Data LogoTuffWerx is grateful to Dr. Markstein for taking the time to share his expertise through this interview. With his forecasts in mind, we hope you’ll be able to make sound decisions for your work in the construction industry this year. For even more insightful data and tools, get to know our friends at Reed Construction Data.

TuffWerx: What was the most unexpected thing that happened in the construction industry in 2012?

Dr. Bernard Markstein: I was pleasantly surprised by significantly better activity in three main areas—residential construction, lodging (hotels and motels), and manufacturing.

If I had to choose among these as most surprising, it would be residential construction, which I had expected to rebound, but not so dramatically. After waiting, and expecting, a turnaround in the housing market for so long, I think my positive outlook for the sector had been tamped down.

Manufacturing construction activity comes in as a close second, again performing even better than my already optimistic expectations for the sector.

TW: Last year, we started seeing an increase in both residential and non-residential construction. What is your forecast for 2013?

BM: Underlying the outlook for construction in 2013 is my forecast for an improving U.S. economy, which will mean continued employment growth. Thus, I expect the momentum from 2012 construction activity to continue into 2013.

In housing, we are seeing the slow, but relentless, unleashing of years of pent up demand as employment expands. Nonresidential construction will experience increased activity as companies see the need to invest in new plants and equipment to meet rising demand.

I am forecasting a 22% increase in new residential (single-family and multifamily) construction spending and 3.5% growth in nonresidential building construction.

Nonresidential building construction activity is held down early in the year, due to reticence by companies to undertake projects, due to the uncertainty created by the politicians in Washington and the disputes arising from the fiscal cliff and the debt ceiling. However, my forecast has nonresidential building construction activity improving throughout the year, ending the year on a high note.

TW: Housing prices have leveled out over the last few years. In 2012, we started seeing a modest regionally-centric uplift. What do you think we’ll see this year?

BM: We’ll see the trend continue and spread out to more areas. Short of a Washington, D.C.-engineered recession or some unforeseen economic calamity, housing will strengthen further throughout much of the country.

TW: Will certain areas of the country see significantly higher growth compared to others?

BM: The parts of the country that have been doing well—the upper Midwest (especially North Dakota) and the Southwest (especially Texas)—will continue to grow, although not quite as rapidly as in 2012. The Gulf States (including Texas) will benefit from the natural gas boom. Heavy manufacturing will be attracted there and throughout the Midwest due to lower energy prices. The West Coast will see improved growth as will the Southeast and Mid-Atlantic regions.

Essentially, the growing economy will spread to more parts of the country with the faster performers growing at a somewhat slower pace than before and the laggards experiencing better times.

TW: Given the oversupply of residential and non-residential properties in the last few years, and the possible economic turnaround we are starting to see, how will new and used construction equipment segments be affected? Will they mirror each other or behave differently?

BM: Still functioning used equipment have a cost advantage since they don’t have to meet strict new environmental regulations. How much of that used equipment is still viable is an open question. The age of that equipment favors the newer, more efficient machinery. There will be better utilization of equipment as more developers choose to rent their equipment rather than buy it.

TW: What are you most optimistic about where the construction industry is concerned?

BM: I am optimistic about construction in general for the next several years. With a growing economy and, until last year, much delayed investment, there is a great need to invest in new structures. Residential construction is still recovering. The nation is adjusting from an extremely low level of residential construction activity back towards meeting its long-term needs. The result will be good growth rates for that sector, albeit from low initial levels, for several years.

I am also optimistic about manufacturing construction. The natural gas boom, by lowering energy prices, makes the United States a very attractive place for many companies to locate. The attractiveness of the U.S. is enhanced by savings from shortening supply and distribution channels, faster implementation of design changes, and the country’s reliable infrastructure. The last item requires the U.S. to maintain and improve its highways, ports, airfields, power system, and communication system to remain competitive.


Do you agree with Dr. Markstein’s forecast for 2013? Let us know by commenting below.