2014 was a year of economic recovery in the United States. CNN Money reported that 2014 was the country’s strongest year of job growth since 1999, with more than 2.95 millions jobs added.
As the new year begins, we asked economist Edward Zarenski to share his economic predictions for 2015, specifically as they relate to the construction industry. Zarenski is author of the Gilbane Construction Economics Report, which he prepares and publishes every quarter. As a 40-year construction veteran and Estimating Executive who has managed multimillion dollar project budgeting, he is uniquely positioned to forecast for the coming 12 months.
Tuffwerx is grateful to Edward Zarenski for taking the time to share his expertise. With this construction industry economic forecast in mind, we hope you’ll be able to make sound decisions for your work this year.
To download the most recent edition of the Gilbane Construction Economics Report, visit this web page. You may also be interested in comparing these predictions with those made by Dr. Bernard Markstein in January 2013.
Tuffwerx: What was the most unexpected thing that happened in the construction industry in 2014?
Zarenski: Early in 2014, many analysts were predicting a consensus of about 1,140,000 New Housing Starts. That would have meant an increase of 215,000 over 2013, a record year for new housing starts. By mid-year it became clear we would not reach anywhere near that amount and now with only one month unreported, we see it will be difficult even to reach 1,000,000. That’s a miss of almost 15%. For what it’s worth, in January 2014, I predicted we would reach only 1,050,000 new housing starts in 2014.
Tuffwerx: Our country’s aging infrastructure continues to attract attention from analysts. Do any of your data points indicate that government purse strings will loosen in 2015 for public infrastructure projects?
Zarenski: The period from July 2012 through August 2013 had the lowest average new starts for infrastructure work of any period in the last six years, until the first six months of 2014 went even lower. Infrastructure projects have a long time-line to the end of construction. Therefore, the effect of all of those declines in new starts will result in constrained spending continuing through 2015.
Public funding for infrastructure projects, while not expected to decline in 2015, may not receive substantial increases in federal or state funding. The largest dollar volume of publicly funded infrastructure work is Highway and Street, accounting for about 50% of all public infrastructure work. The Highway Trust Fund and the Moving Ahead for Progress in the 21st Century Act (MAP-21) are replenished only with temporary measures until the middle of 2015, when once again they will face an uncertain future.
Tuffwerx: Which U.S. markets do you expect to see the most construction activity in 2015?
Zarenski: I expect to see very positive growth in nonresidential buildings. Commercial, Office and Manufacturing sectors should experience the largest percentage annual increase, ranging from +12% to +15%. Healthcare may experience the largest year to year change in the rate of growth, from a decline of 6% in 2014 to +8% in 2015.
Tuffwerx: Do you predict that skilled labor shortages will impact the construction industry this year?
Zarenski: I do think skilled labor shortages will impact construction this year. There are several studies that indicate shortages within certain skilled trades. Shortages may lead to extended schedules or overtime to meet demanding schedules and this would have an effect on labor costs.
Tuffwerx: How do your predictions for 2015 affect demand for assets like heavy equipment?
Zarenski: Heavy Equipment asset purchases are dependent on growth and profits. Contractors need to experience growing backlog at a good profit margin before they can invest in new assets. We see the potential for nonresidential growth in 2015 which may lead to some contractor’s decisions to increase equipment assets.
Tuffwerx: What are you most optimistic about in 2015 where the construction industry is concerned?
Zarenski: I’m most optimistic that the trend for new work on nonresidential buildings will climb at a very rapid rate, more rapid growth than we’ve seen in five or six years. Significant growth in nonresidential buildings has been a long time coming and it seems to finally be here.
Photos by JD Hancock, Pedro Moura Pinheiro, Kyle May and Georgie Pauwels via Flickr CC.