Chief Economist Advises Overall “Wait-and-See” Approach
Associated Builders and Contractors’ (ABC) Chief Economist Anirban Basu forecasts continued momentum for the construction sector next year but advised an overall “wait-and-see” approach based on leading and lagging indicators and economic uncertainties, according to a 2020 economic outlook published in Construction Executive magazine.
Although ABC’s Construction Backlog Indicator—a leading indicator that reflects projects under contract yet to be executed—climbed to nine months in August 2019, construction spending and employment—lagging indicators—have started to soften. Yet, while spending in private nonresidential categories such as office and logging has decreased, public spending categories remain a bright spot.
“Indeed, one of the sources of strength for the U.S. economy over the last year has been a pickup in infrastructure spending,” said Basu. “While the federal government has yet to fashion a full-fledged infrastructure plan for the nation and the Highway Trust Fund is set for insolvency by 2021 absent congressional action, infrastructure-related outlays remain a good news story. So far, state and local governments have come to the rescue, supported by rising collections of income, sales and property taxes. Several key construction segments have benefitted as a result, including water/sewer, transportation, and highway/street.”
These outlays pushed the infrastructure segment of CBI to 10.4 months of backlog as of August 2019, significantly higher than the commercial and institutional and heavy industrial segments.
Basu also flagged the ongoing workforce shortage as a significant factor that will continue to affect the construction sector next year, even as job growth slows. According to ABC’s August Construction Confidence Index, 59.3 percent of contractors intended to expand their staffing levels in the second half of 2019, which necessitates additional education for new hires and rising wages for experienced workers that can drive up the costs for overall construction services.
“Ultimately, the heightened level of uncertainty could induce many economic actors to adopt a wait-and-see attitude, further reducing economic activity in the context of an already rapidly softening global economic environment,” said Basu. But, that said, construction momentum persists. To read the full economic outlook, visit ConstructionExec.com.
ABOUT THE AUTHOR: Anirban Basu is chief economist for ABC and chairman and CEO of the Sage Policy Group. For more information, visit abc.org/economics.