FMI Releases Q2-2013 Construction Outlook Report

FMI, a leading provider of management consulting and investment banking to the engineering and construction industry, releases its Q2-2013 Construction Outlook. The strength of individual markets is shifting, reducing annual Construction-Put-In-Place predictions to $913 billion, a 7 percent growth from 2012. This is down nearly $6 billion from the $918,897 million, 8 percent growth estimated in the Q1’s Outlook. However, FMI does expect growth to return to 8 percent growth in 2014 with annual CPIP reaching $989 billion.

The major markets adjusted downward with lower expected growth are:

  • Residential Construction (-1.8 percent) ­– FMI continues to forecast a 23 percent increase in construction put in place for single-family housing. However, multifamily housing has dropped from a strong increase of 42 percent in 2012 to a current 31 percent increase for 2013.
  • Commercial Construction (-0.8 percent) – The current forecast calls for about a 1 percent drop in commercial construction from the Q1 forecast. However, this still represents a modest increase of 6 percent, to $49.8 billion for 2013. One of the contributing factors is that sales for retail and food service businesses is slower than initially anticipated.
  • Healthcare (-3.15 percent) – Contributing factors for the decrease include hospital beds per 1,000 people trending downward and shorter patient stays.
  • Amusement and Recreation (-2.0 percent) – Given the belt-tightening attitude across the country right now, it will likely be much more difficult to get funding from taxes and municipalities to build new stadiums in the near future.
  • Sewage and Water Disposal (-3.8 percent) – Construction for sewage and waste disposal was off 2 percent in 2012. FMI forecasts another 2 percent drop in 2013. The ability to fund necessary water infrastructure improvements is central to the decline as many municipal water systems still depend on the tax base for funding.
  • Water Supply (-3.2 percent) – Construction for water supply projects will drop 1 percent in 2013 after dropping 7 percent in 2012. On the bright side, in March the Senate Environmental and Public Works Committee unanimously approved a Water Resources Development Act, including a measure to create the Water Infrastructure Finance and Innovation Act. WIFIA would provide $50 million per year from 2014 to 2018 to help fund large-scale water infrastructure projects.

While there is no singular reason for the drop in these markets – each is evaluated on its own criteria – there are a few economic concerns that touch all of them.

  • The decline in public construction.
  • Expectations of more cuts as the sequestration continues.
  • Tight lending criteria.
  • Consumers cautious about increasing their debt load.

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