2020 Vision: Outlook/Forecast


What can we expect in the year ahead? Well, chaos is a given, owing to the fact that it is an election year. Add to that two major trade shows – ConExpo-Con/Agg and MINExpo – and U.S. aggregates producers have plenty to keep them busy, if not distracted.

But there is good news from those who make predictions. The U.S. transportation infrastructure market is expected to grow at least 5% next year, according to the annual economic forecast released Dec. 4 by the American Road & Transportation Builders Association (ARTBA).

“The real market growth for 2020 is being fueled by increased transportation investments from federal, state and local governments,” said ARTBA Chief Economist Dr. Alison Premo Black, who conducted the analysis.

Total domestic transportation construction and related-market activity in 2020 should reach $300.4 billion, up from 2019’s $286.5 billion, after adjusting for project costs and inflation.

The transportation construction market grew by 8% in 2019 compared to 2018, driven largely by gains in highway, street and pavement work, which grew by $9.6 billion to $73.1 billion.

Airport construction work on runways and terminals increased by less than 1% in 2019 but was still at record investment levels.  Strong growth in the subway, light rail and mass transit sector, as well as private railroad investment helped support a strong year for transportation construction activity.

One variable, Black said, is the outlook for the reauthorization of the FAST Act transportation law, due in 2020, and the ability of Congress to find additional revenues to support the Highway Trust Fund (HTF). Any project delays because states are concerned about whether the next federal surface transportation bill is completed in a timely matter could temper 2020 market growth, Black added.  

Overall, transportation construction market activity is expected to increase or be steady in about half of the states, the ARTBA analysis shows. Some of the largest markets expected to remain stable or grow include Texas, California, Illinois, New York, Florida, North Carolina, Washington, Minnesota, Michigan, Arizona and Wisconsin.

Black shared her findings during a Dec. 4 webinar for analysts, investors, transportation construction market executives, and public officials.

Other market variables include material prices, increased labor costs and labor shortages in some regions.   

Among the other key Black findings:

Public & Private Highway, Street & Related Construction  

  • The real value of public highway, street and related construction investment by state transportation departments and local governments – the largest market sector – is expected to increase by 6% to $77.5 billion after growing 15% in 2019. 
  • Construction work on private highways, bridges, parking lots and driveways will increase from $69.1 billion in 2019 to $71.8 billion in 2020 and will continue to grow over the next five years as market activity increases in those sectors.

Bridges & Tunnels

  • The pace of bridge and tunnel construction work stayed flat in 2019 and is forecast to grow by $800 million, or 3%, in 2020. Bridge and tunnel market activity fell slightly from $28.8 billion in 2018 to $28.6 billion in 2019, after adjusting for project costs and inflation.

Light Rail, Subways, & Railroads 

  • Public transit and rail construction are expected to grow from $23 billion in 2019 to $24.2 billion in 2020, a 5% increase.
  • Subway and light rail investment are expected to reach a new record level, increasing from $10.3 billion this year to $11 billion in 2020.

Airport Runways & Terminals

  • After growing 34% in 2018, airport terminal and related construction work, including structures like parking garages, hangars, air freight terminals and traffic towers, is estimated to increase from $18.5 billion in 2019 to $19.6 billion.
  • Runway work is forecasted to increase from $4.7 billion in 2019 to $4.9 billion in 2020.

Ports & Waterways 

  • The value of port and waterway investment should grow to $3.4 billion in 2020. Construction activity in 2019 was $3.3 billion, up from $2.5 billion in 2018.

ARTBA’s forecast is based on a series of proprietary econometric models for each mode and analysis of federal, state and local data and market intelligence. The full forecast can be purchased at www.artbastore.org.

CONSTRUCTION OUTLOOK

Dodge Data & Analytics released its 2020 Dodge Construction Outlook, a mainstay in construction industry forecasting and business planning. The report predicts that total U.S. construction starts will slip to $776 billion in 2020, a decline of 4% 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 for Dodge Data & Analytics. “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% in 2018 construction starts dipped an estimated 1% in 2019 and will fall 4% in 2020.

“Next year, however, will not be a repeat of what the construction industry endured during the Great Recession. Economic growth is slowing but is not anticipated to contract next year. Construction starts, therefore, will decline but the level of activity will remain close to recent highs. By major construction sector, the dollar value of starts for residential buildings will be down 6%, while starts for both nonresidential buildings and nonbuilding construction will drop 3%,” Branch said.

The pattern of construction starts for more specific segments is as follows: 

  • Public works construction starts will move 4% higher in 2020 with growth continuing across all project types. By and large, recent federal appropriations have kept funding for public works construction either steady or slightly higher – translating into continued growth in environmental and transportation infrastructure starts. The dollar value of single-family housing starts will be down 3% in 2020 and the number of units will also lose 5% to 765,000 (Dodge basis). Affordability issues and the tight supply of entry level homes have kept demand for homes muted and buyers on the sidelines.
  • Multifamily construction was an early leader in the recovery, stringing together eight years of growth since 2009. However, multifamily vacancy rates have moved sideways over the past year, suggesting that slower economic growth will weigh on the market in 2020. Multifamily starts are slated to drop 13% in dollars and 15% in units to 410,000 (Dodge basis).
  • The dollar value of commercial building starts will retreat 6% in 2020. The steepest declines will occur in commercial warehouses and hotels, while the decline in office construction will be cushioned by high value data center construction. Retail activity will also fall in 2020, a continuation of a trend brought about by systemic changes in the industry.
  • In 2020, institutional construction starts will essentially remain even with the 2019 level as the influence of public dollars adds stability to the outlook. Education building and health facility starts should continue to see modest growth next year, offset by declines in recreation and transportation buildings.
  • The dollar value of manufacturing plant construction will slip 2% in 2020 following an estimated decline of 29% in 2019. Rising trade tensions has tilted this sector to the downside with recent data, both domestic and globally, suggesting the manufacturing sector is in contraction.
  • Electric utilities/gas plants will drop 27% in 2020 following growth of 83% in 2019 as several large LNG export facilities and new wind projects broke ground.

The 2020 Dodge Construction Outlook was presented at the 81st annual Outlook Executive Conference held by Dodge Data & Analytics at the Renaissance Chicago Downtown Hotel in Chicago. 

AGGREGATES PRODUCTION

Aggregates production has increased nicely through three quarters. An estimated 744 million metric tons (Mt) of total construction aggregates was produced and shipped for consumption in the United States in the third quarter of 2019, an increase of 8% compared with that of the third quarter of 2018, according to Jason Willett, crushed stone commodity specialist for the U.S. Geological Survey.

The estimated production for consumption in the first nine months of 2019 was 1.87 billion metric tons (Gt), an increase of 6% compared with that of the same period of 2018. 

An estimated 446 Mt of crushed stone was produced and shipped for consumption in the United States in the third quarter of 2019, an increase of 9% compared with that of the third quarter of 2018. The estimated production for consumption in the first nine months of 2019 was 1.14 GT, an increase of 8% compared with that of the same period of 2018. 

The estimated U.S. output of construction sand and gravel produced and shipped for consumption in the third quarter of 2019 was 298 Mt, an increase of 5% compared with that of the third quarter of 2018. The estimated production for consumption in the first nine months of 2019 was 727 Mt, an increase of 3% compared with that of the same period of 2018. 

The above estimates are based on information reported to the U.S. Geological Survey (USGS) on its quarterly sample survey by construction aggregates producers. 

Portland (including blended) cement consumption increased by 7% in the third quarter of 2019 compared with that of the third quarter of 2018. Consumption in the first 9 months of 2019 increased by 4% compared with that of the same period of 2018. This information was obtained from the USGS monthly survey of U.S. cement producers. 

The estimated production for consumption of construction aggregates in the third quarter of 2019 increased in eight of the nine geographic divisions compared with that sold or used in the third quarter of 2018. 

The five leading states were, in descending order of production-for-consumption, Texas, California, Ohio, Michigan and Pennsylvania. Their combined total production for consumption in the first 9 months of 2019 was 541 Mt, an increase of 3% compared with that of the same period of 2018.

The estimated production for consumption of crushed stone in the third quarter of 2019 increased in seven of the nine geographic divisions compared with that sold or used in the third quarter of 2018. 

The five leading states were, in descending order of production for consumption, Texas, Pennsylvania, Missouri, Ohio and Florida. Their combined total production for consumption in the first 9 months of 2019 was 380 Mt, an increase of 10% compared with that of the same period of 2018 and represented 33% of the U.S. total. 

The estimated production for consumption of construction sand and gravel in the third quarter of 2019 increased in seven of the nine geographic divisions compared with that sold or used in the third quarter of 2018. 

The five leading states were, in descending order of production for consumption, California, Texas, Minnesota, Michigan and Washington. Their combined total production for consumption in the first 9 months of 2019 was 261 Mt, an increase of 3% compared with that of the same period of 2018 and represented 36% of the U.S. total. 

CONSTRUCTION SPENDING

The U.S. Census Bureau announced that construction spending during October 2019 – the most current at press time – was estimated at a seasonally adjusted annual rate of $1,291.1 billion, 0.8% (±1.0%) below the revised September estimate of $1,301.8 billion. The October figure is 1.1% (±1.5%) above the October 2018 estimate of $1,277.4 billion. During the first 10 months of this year, construction spending amounted to $1,086.5 billion, 1.7% (±1.2%) below the $1,105.2 billion for the same period in 2018.

In October, the estimated seasonally adjusted annual rate of public construction spending was $334.8 billion, 0.2% (±1.6%) below the revised September estimate of $335.6 billion, but jumped 10.2% from a year earlier. 

Highway construction was at a seasonally adjusted annual rate of $95.0 billion, 2.2% (±3.9%) below the revised September estimate of $97.1 billion. Among the three largest public categories, spending in October climbed 8.4% compared to the October 2018 rate for highway and street construction spending, 9.8% for educational construction and 13.0% for transportation (airports, transit, rail and port) projects.

Spending on private construction was at a seasonally adjusted annual rate of $956.3 billion, 1.0% (±0.7%) below the revised September estimate of $966.1 billion. Residential construction was at a seasonally adjusted annual rate of $508.2 billion in October, 0.9% (±1.3%) below the revised September estimate of $512.6 billion. 

Nonresidential construction was at a seasonally adjusted annual rate of $448.1 billion in October, 1.2% (±0.7%) below the revised September estimate of $453.5 billion.

“A drop in mortgage interest rates has given a boost to single-family homebuilding in recent months, but these gains have been offset by weak private nonresidential spending as trade friction drags down U.S. economic growth,” said Associated General Contractors of America Chief Economist Ken Simonson. “Businesses that have been hurt by existing tariffs and retaliatory actions by U.S. trading partners or firms facing uncertainty over future trade policy are likely to hold off on construction projects.”  

Association officials observed that private nonresidential investment has weakened over the past year as trade disputes and uncertainty over future trade policy have had a negative impact on a variety of agricultural, manufacturing, distribution and transportation businesses. They urged the Trump administration to settle disputes promptly.

“Construction firms are at risk of being caught in the crossfire from trade wars unless the government removes tariffs that are hurting the competitiveness of U.S. businesses and gets foreign countries to re-open their markets to U.S. exports,” said Stephen E. Sandherr, the association’s chief executive officer. “Until that happens, private nonresidential construction is likely to suffer.”

“At this point, economic indicators are providing mixed signals about the U.S. construction industry’s trajectory,” said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. “Today’s release suggests that the industry’s spending cycle is winding toward a close and has been for about six months. Yet, according to the October employment data or ABC’s Construction Backlog Indicator the story is very different. Those data tell the tale of an industry still wrestling with enormous levels of work and ongoing labor shortages.

“Moreover, though overall nonresidential construction spending is a bit lower than it was six months ago, there are still segments that are performing well,” said Basu. “A number of public construction segments experienced solid growth on monthly and annual bases, including public safety, conservation/development (e.g. flood control), educational and water supply. With state and local government budgets still generally healthy, spending on public works will conceivably remain elevated for the foreseeable future.

“The primary source of weakness has been private construction,” said Basu. “This is consistent with recent readings of ABC’s Construction Confidence Index and a number of other leading indicators. Among the segments softening the fastest are the manufacturing and commercial segments, which are both down on monthly and year-ago bases. Commercial construction is down more than 16% over the past year, which coincides with the fact that 2019 will set a record for store closings in the U.S. as e-commerce continues to gobble up market share. Lodging and office-related construction has also slowed of late, likely because developers have already exhausted many of the best investment opportunities.”

CONSTRUCTION STARTS

New construction starts declined 11% in October to a seasonally adjusted annual rate of $696.3 billion, according to Dodge Data & Analytics. This is the third consecutive monthly drop in construction starts activity.  On the plus side, highway and bridge starts increased 4% in October and miscellaneous nonbuilding starts increased 14%.

By major sector, nonresidential building starts fell 20% from September to October and nonbuilding starts dropped 14%, while residential starts moved 2% lower. Highway and bridge starts increased 4% in October.

Through the first 10 months of the year, total construction starts were 4% lower than in the same period of 2018. Both residential and nonresidential construction starts were down through 10 months, although nonbuilding starts remained on the plus side due to gains in electric utilities/gas plants and environmental public works.

Nonbuilding construction fell 14% in October to a seasonally adjusted annual rate of $159.2 billion. Starts in the electric utility/gas plant category fell 69% in October as activity retreated from a strong September. Environmental public works starts (drinking water, sewers, hazardous waste, and other water resource projects) moved 12% lower over the month. 

Through the first 10 months of 2019, nonbuilding construction was 2% higher than in the comparable period of 2018. The electric utility/gas plant category was 108% higher than a year earlier and environmental public works was up 2%. Miscellaneous nonbuilding was 21% lower through 10 months and highways and bridges declined 10%.

Nonresidential building starts lost 20% over the month in October, falling to $225.8 billion (at a seasonally adjusted annual rate). This steep decline comes after a very strong September that saw two projects valued at nearly $1 billion break ground – a consolidated rental car facility in Los Angeles and a large manufacturing complex in Detroit. In October, commercial starts fell 3% with gains in the office and hotel sectors muting the downturn. Manufacturing starts peeled back 69% and institutional starts moved 20% lower.

On a year-to-date basis through October, nonresidential building starts were 7% lower than a year earlier. Commercial starts were up 3% due to gains in office buildings, warehouses and parking structures, while institutional construction was down 6% through October with all major categories posting declines. Manufacturing starts were 43% lower.

Residential building dropped 2% in October to $311.3 billion at a seasonally adjusted annual rate. Single-family housing starts were 7% lower, while multifamily starts increased 14% over the month. 

Through the first 10 months of the year, residential construction starts were 6% lower than in the same period of 2018. Single family starts were down 3%, while multifamily declined 12% year-to-date.


OTHER ECONOMIC MARKERS

  • Investment in equipment and software is projected to expand 1.1% in 2020 while U.S. economic growth slows to 1.7%, according to the 2020 Equipment Leasing & Finance U.S. Economic Outlook released by the Equipment Leasing & Finance Foundation. Mining and oilfield machinery investment growth could improve modestly. Construction machinery investment growth should increase moderately. Trucks investment growth is expected to weaken.
  • Shipments of limestone on the Great Lakes totaled 3 million tons in November, an increase of 8% compared to a year ago, according to the Lake Carriers’ Association. Limestone cargos were also 8% above the month’s five-year average. Loadings from U.S. quarries increased 12.2% from 2018 to 2.6 million tons. Shipments from Canadian quarries totaled 429,649 tons, a decrease of 12.1%. Year-to-date the limestone trade stands at 30.2 million tons, an increase of 11.2% compared to a year ago. Loadings from Michigan and Ohio quarries increased 12.2%.
  • The Dodge Momentum Index moved 2.9% higher in November to 155.3 (2000=100) from the revised October reading of 150.9. The Momentum Index, issued by Dodge Data & Analytics, is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. The increase in November was the result of a 6.5% increase in the institutional component, while the commercial component moved 0.7% higher.
  • Sales of newly built, single-family homes decreased 0.7% to a seasonally adjusted annual rate of 733,000 units in October, off strong upward revisions to the September reading, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. On a year-to-date basis, new home sales for 2019 are 9.6% higher than the same period in 2018. Moreover, the past two months represent the highest monthly sales rate since October 2007.