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Construction Industry Economic Symposium Highlights

Construction Industry Economic Symposium Highlights

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The Delaware, Eastern Pennsylvania and New Jersey Chapters of the Associated Builders and Contractors (ABC) and the Philadelphia Chapter of the Construction Financial Management Association (CFMA) sponsored a Construction Industry Economic Symposium in February 2015.  Organizational members and guests attended this event to hear a presentation of the national, regional and construction industry’s economic performance in 2014 and a forecast for 2015.  Louis Sandor and Paul Kuhl from the WS+B Construction Services Team attended this symposium and below is some information gathered from the event.

The featured speaker at the symposium was Anirban Basu.  He is the Chairman and CEO of Sage Policy Group, Inc., an economic and policy consulting firm in Baltimore, Maryland.  Mr. Basu serves as the chief economist to Associated Builders and Contractors and as the chief economic advisor to the Construction Financial Management Association.

S. and Regional Economies – 2014

The U.S. economy has had 6 years of recovery from the recession in 2008.  This is the longest growth period in the country after a recession. In the 4th quarter of 2014 the United States’ economy grew approximately 2.6%.  This growth was largely attributable to   gains in the stock market, increases in corporate profits and personal consumption. Federal Reserve statistics indicate that the 2014 industrial production index has continued to increase and it is now greater than it was in 2007.   While the economy has continued to improve, the average hourly earnings for construction workers, based on Bureau of Labor Statistics are still lower than they were in 2008 and 2009.

In 2014 the New York economy was expanding while the New Jersey and Pennsylvania economies were in recovery, but they had not fully recovered from the recession.  To further support this, the 2014 state tax collections in New York were 0 – 15% greater than their pre-recession collections while the state tax collections in New Jersey and Pennsylvania were 0 – 15% less than their prerecession collections.

Construction Industry – 2014

Nationally, construction industry employment increased approximately 5% over the prior year.  On a regional basis construction employment in Pennsylvania increased 8.8%, New York increased 8.7% and New Jersey only increased 1.8%.  Most of this growth was in private sector construction.

Mr. Basu noted that during the last 15 year period new home sales in the U.S.  have decreased.  Another indicator of this trend is the decrease in the issuance of building permits for housing, based on U.S. Census Bureau data. In the 4th quarter of 2014 U.S. home ownership, based on U.S. Census Bureau data, was 63.9% which is the lowest percentage since the 1985 to 1994 time period.  Mr. Basu partially attributes this decrease to the amount of student debt that is being carried by many of the people who would be considered a potential home buyer, increases in the prices of new homes and the increase in the amount of the down payment now required for a mortgage coupled with a decrease in asset accumulation by those individuals in this category.

Non-residential building construction put-in-place, based on U.S. Census Bureau data, for the period of December 2008 to December 2014 decreased 10%.  However, many subsectors of nonresidential construction spending experienced growth in December 2014 compared to December 2013 experienced.  Some of those subsectors were conservation and development increased 24%, lodging increased 18.3%, office increased 17.6 %, sewage and waste disposal increased 10.5% and highway and streets also increased 10.5%.

One favorable indicator for the construction industry is that, overall, the cost of construction materials in the last 2 quarters has decreased.  This is primarily due to the decrease in the price of oil and petroleum based products.

2015 Forecast

Overall, Mr. Basu stated that he thinks that the U.S. economy is ready for an up shift.  It has gained momentum in the past year, and he is forecasting that the U.S economy will increase by 3.6% in 2015.  The basis for this is the continuing increase in consumer spending.  The top 2 segments where he anticipates growth in consumer spending are food services and car sales.  He believes that the increase in consumer spending is a result of lower gasoline prices, the performance of the stock market and the stabilizing of the global economy.

Mr. Basu is nervous about the potential negative impact that some of the international political issues may have on the anticipated economic growth in 2015. He is also nervous about the potential negative impact that the falling oil price may have on economic growth, but overall his opinion is that this decrease will be good for the economy.  He is also concerned that the strength of the U.S. dollar may lead to a slowdown in the amount of goods and services which the U.S. can export and the effect that may have on growth.  He noted that the growth in consumer spending is being partially funded by the growth in consumer debt (i.e. car loans and credit cards).  He indicated that approximately 35% of families are spending more than what they are earning.  In summary, as the economy continues to expand the consumer confidence will continue to grow.

As consumer spending continues to increase, the construction industry will benefit.  As the construction industry continues to grow it is anticipated that there may be a shortage of qualified workers.  This is the result of more workers retiring than entering the industry.  In order for construction companies to continue to grow the industry must find new ways to attract younger people.  In addition, the construction industry must continue to invest in technology which will result in productivity gains as well as appeal to the younger employees of a construction company.

 Paul Kuhl, CPA.CITP Paul Kuhl, CPA.CITP
609-520-1188
pkuhl@withum.com

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The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals.

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