Moody's outlook: Strong 2017 construction spending to boost building materials industry
- Investment and research firm Moody's predicted in its January 2017 Outlook report that increased construction spending this year will benefit the building materials industry through stronger demand and higher prices.
- Moody's expects the private residential sector to maintain steady growth, but it said the private nonresidential sector should expect a less robust rate of advancement. Public spending should finally benefit from a sizeable flow of Fixing America's Surface Transportation Act (FAST Act) funding.
- Moody's said a potential boost in public spending spurred by President-elect Donald Trump's anticipated infrastructure proposals has also contributed to its positive industry outlook.
The positive Moody's analysis follows the Commerce Department's report last month that found November marked the highest level of construction spending since April 2006. The fact that all three major sectors of the industry — public, residential and nonresidential — saw gains in November demonstrated construction's strength at the end of 2016 and heading into 2017.
According to an Associated Builders and Contractors analysis of Bureau of Labor Statistics data earlier this month, material prices rebounded 0.4% in December after a November decline. That slight uptick put prices up 2.1% year over year, marking the largest 12-month increase in 30 months.
While construction activity is driving Moody's projected increases in material prices, rising costs are always of concern to contractors. Combined with the heftier wages required to attract and retain skilled workers, the added burden of a larger materials bill is what is leading the ABC to predict slower growth for the nonresidential sector in 2017.
Material suppliers and other related construction businesses enjoyed a boost in stock prices back in November after Trump's victory, signaling that his plan for infrastructure spending and decreased construction regulations was welcome among industry players. However, lawmakers are already taking sides over Trump's $1 trillion infrastructure plan, so it remains to be seen if and when contractors and suppliers can expect to see the president-elect's ambitious plans begin to take hold.
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