Economists Weigh In on 2020 Construction

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Robison Wells
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Economists have been announcing their predictions and forecasts for the new year, and some of the news isn’t as good as we’d like—but it’s not all bad.

Economists from the Equipment Leasing & Finance Association (ELFA), Associated General Contractors (AGC), and the Association of Equipment Manufacturers (AEM) have all spoken about what to expect in the coming year. The general consensus is that there will be slower growth in the economy, weak investment in equipment, and a continuation of the labor shortage.

The chief economist at the AGC, Ken Simonsen, wrote about the growth of public, private, and multifamily construction:

"Total growth in nonresidential construction spending, as reported by the Census Bureau's monthly ‘value put in place' series, will be close to the 2.2 percent increase recorded year-to-date for the first 10 months of 2019 compared to January-October 2018," he said. "The best-performing segments in 2020 are likely to include highway and street construction, transportation facilities — airports, transit, ports and railroads — and power and energy — solar and wind, possibly including offshore wind, and pipelines."

He also said that the weakest category in commercial construction would be retail, with the exception of retail space in other mixed-use facilities such as airports and office buildings.

ELFA economists believe that the economy, which already started to dip in 2019, will continue slowing. "Overall, we expect the economy to grow 1.7 percent in 2020 (down from an estimated 2.3 percent in 2019), while we project that equipment and software investment will expand 1.1 percent (down from an estimated 3.6 percent in 2019).”

In response to the question of whether the labor shortage would be eased in any way, Simonsen answered with a firm ‘No’. Citing the 2020 AGC of America-Safe Construction Outlook Survey, he noted that "three-fourths of survey respondents expect to add employees in 2020. However, four-fifths of the firms said they are having a hard time filling positions, and two-thirds think it will be as hard or harder to fill positions in the coming 12 months."

Despite the troubles, most contractors plan to add personnel in 2020 to grow in pace with demand. More than half of contractors say they expect to expand by 10% or less; one fifth said they’d grow by 11-25%; less than 5% said they’d more than 25%. According to Construction Equipment Guide, “Despite plans to expand headcount, 81 percent report having a hard time filling salaried and hourly craft positions. In addition, 43 percent expect the challenge to hire will continue in the next 12 months, and 22 percent expect that it will become harder to hire in 2020.”

"Firms are adopting a variety of approaches to replace workers or allow for use of workers with less experience or training than before," Simonson said. 32% said they’d be investing in equipment that would decrease their need for manpower; 28% said they’re using methods to reduce onsite worktime to make their working hours stretch further.

Two other issues could be problems, he says. First, if interest rates rise there could be a cutback in projects across the board, including homebuilding, developer-financed projects, and bond-funded projects. Second, trade frictions could flare up again, leaving contractors on the hook for higher material costs as well as manufacturing, logistics, and transportation problems.

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