At the recent Intercem Americas conference in Miami, Colin Sutherland, president of SC Market Analytics, talked about infrastructure market dynamics that will impact the construction economy. He provided an optimistic versus pessimistic forecast. Here are some of his conclusions:
The General Economy
Optimistic: The economy does better than it has recently as real annual GDP growth remains near 3 percent. Lower corporate taxes stimulate investment even in the face of rising interest rates.
Pessimistic: Lower corporate taxes and regulation reform peter out and rising interest rates diminish business investment. Real GDP growth under 2 percent for several years.
Residential Activity
Optimistic: A near-term plateau as favorable household formation rates encounter affordability hurdles, rising mortgage rates and structural changes that would otherwise push home construction higher.
Pessimistic: Rising interest rates, high prices and slowing employment growth finally bite residential demand and cause 5 to 15 percent declines in most areas.
Nonresidential Building
Optimistic: Another near-term plateau as support for new projects meet the headwinds of slower employment growth and a weak “bricks and mortar” sector.
Pessimistic: Slowing employment growth and a continuation of the “retail ice age” continue to hamper demand. Warehousing supply begins to exceed demand, causing declines for this category.
Nonbuilding Sector
Optimistic: Sector grows by 18 percent from 2017-21 as higher state gas taxes and federal support pave the way for new infrastructure projects.
Pessimistic: Demand begins to level off, then modest declines as health care and pension costs rise and tax receipts flatten.
Of course, a fully funded federal infrastructure bill solves many of the possible clouds on the horizon. It would be nice to see Congress and president come to an agreement on that.
By the time you read this, midterm elections will be over. That may better provide us with reasons to believe in his optimistic or pessimistic forecast.