Construction industry market segments to impact economic recovery
So far, market trends are pushing the market upward, adding confidence to a projected recovery. As the market economics shift, the construction industry is expected to see an increase in project development activity — some consisting of backlogs and other new developments to support the growing public service needs.
As of January 2021, construction spending grew 1.7 percent with an adjusted annual rate of $1.5 trillion, surpassing the median forecast of 0.8 percent — U.S. Census Bureau. Economic analysts forecast the U.S. construction spending will increase by a predicted 6 percent in 2022.
Although construction activity has been slow, forecasting resources share similar responses to this year’s growth after enduring the pandemic’s effects. One of those resources is Richard Branch, chief economist at Dodge Data & Analytics, commenting on the construction industry’s 14 percent loss in 2020 and followed the statement with a projected 4 percent gain in 2021.
Watching the housing sector is the National Association of Real Estate (NAR), estimating modest growth in the construction housing starts throughout 2021. According to the NAR’s forecast, construction activity will increase for the residential market — a market segment slated to lead the housing sectors.
As the construction industry prepares for more activity and the economy reopens, predictions will change according to how well the construction sectors focus on management foundations supporting the market strengths vital to generating higher revenues.
Business outlook for the construction industry
Starting the new year, Feds have confidence in the nation’s economic resilience and well aware that the road ahead has a few more bumps and twists. Responding to these concerns, the federal government will hold the interest rates to help sustain and boost the economy, making it more affordable to borrow.
The past patterns, expected growth, recovery challenges, and uncertainty in the industry remains a concern. Changing interest rates for borrowed project funding could impact the spend amount as the cost of materials rise — upsetting operating budgets, project schedules and bottom-lines.
From all the news reports, chances that the Feds will raise the borrowing rates are slim to none, as the economy positions for the long-term recovery — on that same thought, even with a small interest rate hike, upsets to the construction forecasts are marginal.
Calming the uncertainty is the government’s recent report on increased construction spending and project bids. More good news, construction activity backlogs approved in 2020 have started to move forward and continue well into 2021.
Here’s a progressive review and forecast on the construction sectors:
Residential construction experienced favorable mortgage rates, prompting industry growth. Some industry experts believe city dwellers moved to the suburbs as a protective measure to avoid COVID-19 crowding. Real estate markets believe the move is attributed to growing families taking advantage of affordable mortgage rates.
On March 17, 2021, the U.S. Census Bureau reported February 2021 Housing Starts were down by 10 percent. NAR‘S February forecast shared similar results with a projected increase during the first and second quarter of this year. Single-family units remain strong and multi-family units decline in the first quarter, hoping to rebound in the second.
Commercial building construction starts will gain activity and growth in 2021. Triggered by the pandemic eCommerce business strategies pushed the need for remote warehousing, challenging this market segment to meet the demands for eCommerce logistics — opening the door for construction revamping of warehouse space.
Nonresidential construction segments experiencing a decline of 1.7 percent were hospitality and retail shopping centers. Recovery for this market segment will continue to be slow due to health restrictions on travel and the increase of online shopping. Forecasts for nonresidential anticipate a steady recovery as the markets adjust to new business and re-opening strategies with an average growth of 4.7 percent over the next five years.
Public Works industry experts and professionals agree that infrastructure projects are crucial factors to strengthening the U.S. economy. The third quarter of 2020 reported delays or cancellations for infrastructure projects valued at $9 billion. As the threat of COVID-19 fades at the end of the first quarter and continues to dissipate to the end of the year, analysts forecast economic growth quarter by quarter.
Utility Construction activity will see an increase in growth for infrastructure and building projects segmented into public and private sectors, fueled by President Biden’s build initiative and funded through government spending. Focus on renewable energy projects comprised of wind and solar will move to the forefront playing an essential role to clean power and a thriving economic growth.
The message is loud and clear, the future of U.S. construction industry is positive for the long-term with its own set of challenges. Reaching the goal of full recovery requires companies to head back to the drawing board to plan, prepare and adapt newer if not better technological and management strategies for staying ahead of the competition.