Marcum: 4.2% Q2 spending increase falls short of estimates amid 'noisy' market conditions
- In its latest Commercial Construction Index report, accounting and advisory firm Marcum said nonresidential spending growth was lower than expected in the second quarter of 2018, increasing just 4.2% from the second quarter of 2017. Even though that rise is still indicative of a healthy economy — with the lowest level of construction unemployment in the last 20 years and a tech construction boom courtesy of companies like Amazon and Google — there are "noisy" conditions that could create powerful challenges for construction companies.
- Some possible future obstacles are the effects of the currently constrained trade war between the United States and the European Union, China, Canada and others sparked by U.S. tariffs on steel and aluminum; the state of some emerging markets; and the potential for skilled labor shortages to impact productivity, inflation and interest rates. Already, according to Anirban Basu, Marcum's chief construction economist, the limited pool of workers, a softness in some areas of the infrastructure segment, a too-hot real estate market in some metros and an insufficient supply of some materials could be constraining construction spending. The hope is that these currently manageable hurdles won't result in project cancellations and leaner backlogs.
- The top metros for year-over-year construction spending growth were Phoenix (11.4%); Miami (10.2%); Houston (8.9%); Atlanta (6.9%); Boston (6.8%); Dallas (5.5%); Chicago (5.1%); San Francisco (4.7%); Detroit (4.6%) and Tampa (3.9%). By industry segment, public safety (20.2%), water supply (17.7%), transportation (14.5%), sewage and waste disposal (11.7%), office (10.8%), lodging (10.7%) and conservation and development (10.4%) projects led all other segments in construction spending from June 2017 through June 2018, with religious (-13.7%), manufacturing (-5.7%), education (-5.5%), communication (-0.8%), commercial (1.1%) and healthcare (1.5%) projects showing the least spending growth.
The rebuilding efforts after natural disasters always strain labor and material supplies, and post-Hurricane Florence activity will be no different once the waters recede and owners of commercial and residential properties are able to return to the area and take stock of the damage.
According to The New York Times, those intent on reconstructing flooded and wind-damaged structures could face a 20% to 30% higher price tag as a result of tariffs alone, assuming that the material will be readily available in a post-Florence market. Softwood lumber, in particular, is 40% more expensive than it was a year ago, partly due to demand but also to a 20% tariff imposed by the President Donald Trump administration.
Since most of the damage from Florence is from floodwater, however, some property owners will have to dip into their own pockets for repairs or turn to Federal Emergency Management Agency loan programs as only about 335,000 homes out of millions in North Carolina and South Carolina — the hardest hit states — are covered by flood insurance.
- Marcum Commercial Construction Index Marcum Commercial Construction Index - 2018 Q2
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