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Construction Projected to Increase in 2013

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Industry experts predict that construction will increase 6 to 7 percent in 2013, energy, healthcare, commercial, and lodging leading the way. Wikimedia Commons/Brianhe

Construction spending is expected to continue a modest recovery in 2013, growing between 6 and 7 percent.

November 13, 2012—Experts are predicting that overall construction spending will increase modestly in 2013, extending a steady but plodding recovery from the deep lows of the Great Recession. The recent elections are expected to provide a degree of certainty about future economic policy to corporate leaders who have record cash reserves—perhaps as much as $2 trillion—but have been reluctant to invest because of ambiguity.

FMI Corporation, a management consulting group headquartered in Raleigh, North Carolina, projects overall construction spending will increase by 7 percent in 2013. FMI recently released its U.S. Markets Construction Overview 2013. McGraw Hill Construction, in New York City, last month released its 2013 Dodge Construction Outlook, projecting a 6-percent rise in construction starts.

Any prediction about the coming year comes with a significant caveat—2013 is just beyond the potential year-end “fiscal cliff.” If Congress fails to intervene, tax cut expirations and mandatory federal spending limits will kick in, and the Congressional Budget Office (CBO) projects that this combination will reduce the budget deficit by a $560 billion, and will cause gross domestic product (GDP) to contract 1.3 percent in the first half of the year. The CBO projects GDP will rebound in the second half of 2013 and the year will finish at 0.5 percent growth, but the fiscal cliff could increase unemployment for 2013 by 1.1 percent to 9.1 percent, the CBO estimates.

Philip Warner, a research consultant with FMI, says the key driving factor in 2013 is the fiscal cliff. “Overall we need to get rid of some uncertainty,” he explains.

“Government spending is bound to be down because of tightening budgets,” he adds. “And we are waiting for private investment to pick up. We think it is picking up in pockets.”

Warner says that although 2012 will likely finish weaker than had been expected before the year began, there has been steady improvement. FMI projects the year to finish with an approximately 5 percent increase in construction spending.

“It has been better than a lot of people think,” Warner says. “You have been hearing a lot of bad things in the press because of [the election]. The reality is it has been stumbling along. We are going to have a good deal of construction. It didn’t stop. As we like to say, there are people in the industry who are making money.”

FMI projects construction in the energy and health care sectors will be continue to be bright spots in 2013, both growing about 8 percent, after a strong showing in 2012. Commercial and lodging are both predicted to expand by 7 percent.

Weak areas will continue to be sectors that traditionally rely heavily on public funds. Spending on public safety and water supply construction are both projected to grow at 1 percent following declines in 2012.

“All these [areas] are being hurt because of federal and local budgets,” Warner says. “There is great need in all those areas, it’s just that nobody knows how to pay for it. That’s a problem for the whole country to address, and it hasn’t been addressed yet.”

Residential construction—single-family homes, multifamily units, and renovation—which posted back-to-back declines of nearly 30 percent at the peak of the recession, is projected to see robust growth in 2013. FMI projects a 23 percent increase in single-family home spending. The Dodge Construction Outlook projects 24 percent.

“It is becoming obvious that residential is actually picking up now,” Warner says. “I think we can safely say that it is real. It has been sputtering, but it has traction. Once that happens, that is the engine that will start bringing up commercial construction. And if we get more jobs, then office construction will improve.”

The FMI report projects distinct regional differences in the construction economy for 2013. The Mountain region (Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, and New Mexico) will lead the nation, with a 17 percent increase in construction spending. Investments in power infrastructure there will total $9.4 billion in 2013, a 16 percent increase over 2012.

The Pacific region (California, Oregon, and Washington) will also experience strong growth in 2013, with more than $14 billion in energy spending as a prime factor.

That leaves large swaths of the nation projected to experience construction spending growth in the range of 3 percent.  



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