Associated Builders and Contractors: Construction Activity Is Expected to Slow Down This 2017

construction site
Image Source: Michael Mulvey, CC BY 2.0

The Associated Builders and Contractors (ABC) expect construction starts to slow down to a moderate pace this 2017, as markets lose steam after the building extravaganza in the previous year.

Explaining the forecast, ABC chief economist Anirban Basu said:

“The U.S. economy continues to expand amid a weak global economy and, despite risks to the construction industry, nonresidential spending should expand 3.5 percent in 2017. For more than two years, the Federal Reserve has been able to focus heavily on stimulating economic growth and moving the nation toward full employment. However, as commodity prices, including energy prices, firm up and labour costs march higher, the Federal Reserve will need to be more concerned about rising inflation expectations going forward. Associated increases in interest rates could have significantly negative impacts on certain asset prices, including stocks, bonds, commercial real estate and apartment buildings.”

In this aspect, Basu suggests contractors are to be more prepared for rises in commodity prices that could lead to further inactivity in construction spending if those who purchase construction services are not ready for related cost increases.

Still, Basu says that the industry will be facing a bullish scenario with more investments and rising revenues. He said:

“According to the Bureau of Economic Analysis, the average age of all fixed assets, including structures such as factories and hospitals, stands at 23 years—the oldest on record tracing back to 1925—and there is a collective awareness among American enterprises that they will need to replace much of their capital stock in future years. In addition, now rising energy prices could produce more investment and rising earnings—potentially translating into better support for asset prices, ongoing hiring and consumer spending.”

While 2016 has proven to be a peak year for the construction and real estate (CRE) industry, this year will see construction to drop to a moderate pace.