Chief economists at Associated General Contractors (AGC), the American Institute of Architects (AIA) and ConstructConnect discussed the state of design and construction, and the outlook for 2020, in a webinar. AGC’s Ken Simonson predicted that construction spending would increase 1 percent to 5 percent from 2019 to 2020 (without adjusting for price change), compared with a year-to-date (YTD) decline of 2 percent from the first nine months of 2018 to the same period of 2019. He forecasted a gain of 2 to 7 percent for residential construction (compared to a YTD decrease of 2 percent) and 0-4 percent each for private nonresidential and public construction (compared to -0.6 percent and 6 percent YTD, respectively). ConstructConnect’s Alex Carrick predicted that the value of construction starts would slip 1.6 percent in 2020, compared with a forecasted 2.6 percent drop in 2019, with residential starts sliding 8.3 percent (versus -6.8 percent in 2019); nonresidential building starts edging up 0.9 percent (versus -3.7 percent) and civil starts rising 5.9 percent (versus 8.6 percent). AIA’s Kermit Baker did not present his own forecast but pointed out that the Architecture Billings Index has slowed this year to breakeven or below for all practice specialties: an average of 49.6 year to date through September for multifamily (from 53.4 in 2018 and 52.9 in 2017), 49.2 for commercial/industrial (from 52.1 in 2018 and 52.8 in 2017) and 49.3 for institutional practices (from 52.3 in 2018 and 52 in 2017). A score below 50 indicates that more respondents to AIA’s monthly survey a decline rather than an increase in their billings compared to the month before, after seasonal adjustment. AIA says the ABI “leads nonresidential construction activity by approximately nine to 12 months.”

Dodge Data & Analytics released its 2020 Dodge Construction Outlook on Oct. 31. “The report predicts that total U.S. construction starts will slip…4 percent from the 2019 estimated level of activity….‘The recovery in construction starts that began during 2010 in the aftermath of the Great Recession is coming to an end,’ stated Richard Branch, Chief Economist… ‘Easing economic growth driven by mounting trade tensions and lack of skilled labor will lead to a broad-based but orderly pullback in construction starts in 2020. After increasing 3 percent in 2018 construction starts dipped an estimated 1 percent in 2019 and will fall 4 percent in 2020 … By major construction sector, the dollar value of starts for residential buildings will be down 6 percent, while starts for both nonresidential buildings and nonbuilding construction will drop 3 percent.”

Two recent reports indicate construction wage increases are holding virtually unchanged from recent years. PAS released its latest Contractor Compensation Quarterly Oct. 31. Open-shop “contractors anticipate skilled-craft hourly wage increases of 3.41 percent in 2019 (3.49 percent excluding zeros). Actual increases for 2018 were 3.28 percent (including zeros) and 3.48 percent (excluding zeros). These increases are across the board for all craft, contractor types, sizes, and regions of the country. WorldatWork reports 2019 actual construction increases at 3.7 percent for nonexempt hourly nonunion positions. Similar to last year, we think they’re closer to the correct percentage than our 3.49 percent forecast. However, historically, it’s not unusual for our projected numbers to be slightly lower than the actual year-end figure.” A chart shows that increases (omitting zero percent increases) have averaged 3.4-3.6 percent each year since 2013. The Construction Labor Research Council reported that its analysis of settlements for union crafts in construction showed the “first year of new settlements agreed upon through the third quarter of 2019…had an average increase of 2.8 percent [0.1 percentage point less] than in 2018. With the modest exception of 2019, the average increase has slowly and steadily risen since 2010/11, from 1.7 percent in 2010 to 2.8 percent in September 2019. The gradual trend is forecasted to extend to 3.2 percent by 2021.”

There were 338,000 job openings in construction at the end of September, not seasonally adjusted, an increase of 39,000 (13 percent) from September 2018 and the highest total for September since the series began in December 2000, BLS reported in its Job Openings and Labor Turnover Survey (JOLTS) release. The industry hired 406,000 employees in September, not seasonally adjusted, 53,000 (15 percent) more than in September 2018 and the highest September total since 2005. The record-high job openings in construction at the end of September—despite unusually elevated hiring—together with the low unemployment rate in October for both construction (4 percent, not seasonally adjusted, as BLS reported on Nov. 1) and overall (3.6 percent, seasonally adjusted, close to the 50-year low of 3.5 percent set in September), underscore the challenge that contractors face in finding and retaining acceptable workers to hire. While overall non-farm job openings have declined from year-ago levels for the past four months, construction openings have set series records for each month for 16 consecutive months.

The U.S. Bureau of Economic Analysis (BEA) posted two reports recently that show the contribution construction made to the economy in Q2. On October 29 BEA posted the change in inflation-adjusted (real) value added by industry at a seasonally adjusted annual rate from Q1 to Q2. Overall gross domestic product (real GDP) increased 2 percent, following a 3.1 percent increase in Q1. Real value added for construction dipped 0.3 percent, following a 3.8 percent increase. The price index for value added in construction jumped 6.2 percent, compared to 2.4 percent for the price index for GDP. Real GDP by state increased 2 percent at a seasonally adjusted annual rate from Q1 to Q2, BEA reported on Thursday. Construction subtracted 0.01 percentage point from that growth. Real GDP increased in every state but construction made a positive contribution in only 19 states, negative in 29, and neutral in two plus the District of Columbia. The industry’s contribution ranged from 0.57 percentage points in North Dakota (out of real GDP growth of 1.8 percent) to -0.7 percentage points in West Virginia (out of real GDP growth of 1.7 percent).