2014 Construction Economic Forecast: A “Hare” Better

Recently, a few of us from Ledgerwood Associates attended the Arizona Builders Alliance (ABA),  Construction Financial Management Association (CFMA), and Construction Specifications Institute (CSI) Economic Forecast joint lunch in beautiful Phoenix, AZ. The ballroom was fully packed with accounting and construction professionals, eager to hear what the New Year might promise.

Keynote presenter Cliff Brewis, Senior Director of Editorial Operations at McGraw-Hill Construction (and proud University of Michigan grad – GO BLUE!), presented a succinct snapshot of the national macroeconomic outlook including statistics covering the GDP, unemployment, and Dodge Momentum Index. Let’s take a look at each of these “indicators” of where we may be headed in 2014.

First of all, Mr. Brewis pitched a self-admittedly “conservative” +2.7% rise in the GDP for this year. That’s a nice little bump from the +1.6% increase in 2013. Not enough to sell the farm, but at least enough to keep the horses well fed!

Next up was the change in employment trends. This graph depicts a span of ten years, with the dip in 2009 dramatically representing the Great Recession. Of most concern for the Construction industry will be the lack of skilled and unskilled laborers if the projected “boom” in building occurs. Many of these laid-off workers transitioned to other types of employment in order to survive. Time will tell if they return to what could be perceived as tentative employment security, at best.

Taking a look at 2013, Brewis summarizes the employment growth as “tepid.”

Unemployment rates by state reflect the oil boom is still going strong in North Dakota, with 0.0% to 2.9% unemployment rate. (North Dakota’s population growth is 4% – making it fastest growing state in the country, according to the World Population Statistics website.)

OK, I will admit I had to Google the ‘Dodge Momentum Indicator.’ Here’s the official definition from McGraw-Hill: (…“a 12-month leading indicator of construction spending for nonresidential building…the index is an early and accurate leading indicator of future construction spending. It will prove useful to building product manufacturers, AEC firms, construction industry professionals, economists and Wall Street analysts.”). As a well-branded forecasting device, I am assuming it has to hold up to market scrutiny for its accuracy. (Guess we’ll have to check back next year!) As for now, the news remains (my favorite hedging phrase) “cautiously optimistic.”

And lastly, let’s take a look at Construction segments. The “Nonbuilding” category includes infrastructure projects, like highways and bridges, environmental public works, other public works, and electrical utilities. Looks like the residential segment was the clear winner for growth, as the stimulus funds have dried up for the Nonbuilding sector.

So, for me, the takeaway from McGraw-Hill/Dodge research and resources is a forecast for a slow, deliberate climb out of the abyss that the Construction industry experienced. In contrast with the Great Depression, which lasted from 1930 – the late 30’s to the middle 1940’s – this is still GREAT news. As someone who was caught in the housing bubble and collapse, I prefer a gradual, intentional rebuilding of the (construction) market.

Ultimately, I gambled on the hare, and have learned belatedly, to appreciate the tortoise. Which type of recovery would you prefer?