FMI's Construction Outlook 2nd Quarter 2014
Yogi Berra once famously said, “Nobody goes there anymore. It’s too crowded.” Berra was responding to a question about why he had not been to a favorite, popular restaurant anymore.
Religious “construction” can also be done online and is. Office, travel, amusement, and recreation, even health care, are all changing as more of our lives are spent online. How far will it go? We will not go there with that answer. It’s too crowded.
The point to all this pontificating about changing technology is that, even traditional, mature industries like construction need to be aware of how much these things can and will change their businesses, not just in market changes but in construction companies utilizing new technologies in new ways. In most cases, even the generations-old family business is not the same even though some have maintained the original culture. That’s how a business grows for multiple generations.
So where does a company go with its strategy in a technological world? New markets? Same markets but new products and services? Same clients with new services? Same markets, same services, but more competitive? All of these are valid strategies, but which approach does a company use if, for instance, more retail goes online? There is a need for more data centers and warehouses and maybe even pick-up centers. If a company persists in going to the same market where it has always worked even if it is getting too crowded there, it must have some new tactics such as being the low-price provider or the most efficient contractor. That can lead to ideas like using more modular and prefabricated construction. There is no single solution. If there was, why have multiple competitors in the market?
While it is a dangerous business, we are compelled to predict the future. And predicting the direction of the economy is even more difficult than the long-term weather forecast. In fact, most are blaming at least some of the current slowdown on a tough winter and spring weather. Floods, tornadoes, ice, snow, and firestorms will put a dent in a growing economy, and we can predict that there is more to come whether or not one “believes” in global warming.
Moreover, speaking of unpredictable, it is once again an election year. Even a nonpresidential election year can now cause the economy to shudder. Negative advertising is even now being cooked up behind closed doors, which helps the revenue of the news media but gives the rest of us heartburn as the economy sits on the sidelines and waits it out once again. Will there be a new highway spending bill? More funds spent on infrastructure and schools? Stay tuned. We predict that things will change.
With all the talk about the unpredictability of predictions, we are going out on a limb and mostly sticking to our predictions of last quarter. Overall, our construction forecast remains in the cautiously optimistic zone; it is just that we are a little more cautious and a little less optimistic. We still believe that residential construction is expected to remain a high-growth market, but we have once again pulled back on the outlook. Multifamily is still a fast-growing market, but the rate of growth is slowing. Home improvements are improving. The interplay among these three residential categories is dynamic and heavily influenced by job growth, wage growth, and interest rates, among other factors.
Despite all our well-reasoned and researched caution, we still feel that in some areas nonresidential construction is on the verge of breaking out of its long slumber. For instance, health care and education markets have both slowed due to political circumstances. Those issues could be solved next year, and the pent-up demand will come rushing into the markets. Infrastructure is another example. If someone can come up with the political will or new ideas for funding and operating, this area could take off. These are longshots at this time, but we may even see a Triple Crown winner this year too.
All that said, we expect total construction put in place to grow at the rate of 7 percent this year and for the next few years. Despite all odds and nasty economic weather, the nation needs to grow, and that means more construction projects.
Reprinted with permission from FMI Corporation (919) 787-8400. For more information, call Sarah Avallone at (919)785-9221. To read the full, 28-page FMI’s Construction Outlook – 2nd Quarter 2014 report, visit www.fminet.com.