Regional Report: US market gains momentum

The US construction market was worth US$ 930 billion last year – a +5.3% increase on 2012, according to the US Census Bureau. This built on the +7.8% growth seen in 2012 and the +4.3% improvement of 2011, so compared to the low of mid-2010, the market has seen somewhere in the region of a +16% recovery.

Although there has been steady growth across the industry as a whole over the last three years or so, it has not been evenly spread.

Privately-funded projects have raced ahead of public construction in the face of federal and state budget cuts, and within the private sector, it has been residential building that has come back the fastest.

Of course one of the reasons the residential market has seen such steep growth is that its fall into recession was also steep, and the house building market fell to unnaturally low levels as the result of a classic boom & bust cycle in the 2000s.

At the height of the boom in 2005, permits for some 2.15 million new housing units were granted in the US. That figure fell to just 583,000 in the depths of the recession in 2009 and last year it was back up to 976,000. The number of housing starts, a different, but obviously closely connected statistic, is running at about the same level.

Cyclical industry

Like any other aspect of the construction industry, residential building is a cyclical industry, so it is difficult to say what the natural level should be. However, US Census Bureau data, which goes back to 1960, would put the average number of starts per year around 1.3 million. That would suggest the residential market still has some growth to come.

But although residential construction increased +17.5% last year, or about US$ 53 billion to US$ 357 billion, it only accounts for about 40% of the US construction market by value. More significant is the non-residential sector, which was worth US$ 573 last year. It is also the sector which is of most interest to large contractors because it can comprise larger and more complex projects than residential building.

Unfortunately, the non-residential sector fell by just over -1% last year, and it was largely the private sector that pulled the numbers down. Unlike residential construction, more than 98% of which is in the private sector, non-residential construction is more evenly balanced – last year it was about 54% private to 45% public spending.

In the current era of budget cuts, it might be expected that the public sector would be the key area of falling construction spending, but at US$ 262 billion last year, public non-residential work was almost unchanged from a year ago.

The main reason for this was that, despite the continued absence of a surface transportation funding bill, highway and street construction was up +11.3% year-on-year to US$ 84 billion. Public spending on other transportation structures also rose in 2013 as did investment in power infrastructure.

This did not exactly tally with the situation in the private non-residential sector, where spending on transportation infrastructure saw good growth last year, but where there was a sharp fall in the power sector.

The real action last year in the private non-residential sector was in areas like lodging, office and commercial building – all big sectors that saw double-digit gains. But overall, the private non-residential sector fell -1.7% in 2013, due mainly to the -25.7%/US$ 25 billion decline in the power segment.

Notwithstanding the weak non-residential market last year, there is optimism about the US economy among key commentators.
Strong end to 2013

Ken Simonson, chief economist with the Associated General Contractors of America (AGC) said, “Residential construction ended on a strong note in 2013 and should remain positive for at least the next several months. Meanwhile private non-residential spending appears to be poised for a rebound, but the short-term outlook for public construction is still negative.”

He continued, “The on-going surge of oil- and gas-related activity should boost several types of private non-residential construction in 2014. Many regions will experience more work on pipelines, railroads, manufacturing plants and even fuelling facilities for trucks and buses that convert to natural gas. In addition, communities in the drilling areas will get more housing, hotels and retail projects. As a result, private non-residential spending should grow at a +6% to +10% rate in 2014 overall.”

Meanwhile Ed Sullivan, chief economist at the PCA – formerly known as the Portland Cement Association – said he expects US cement consumption to rise +8% in 2014. Speaking at January’s World of Concrete exhibition he said, “At no time in our history has there been this level of pent up demand.”

He continued, “Housing affordability levels are still extremely favourable and mortgage lending standards are starting to ease. Housing starts increased +18% last year and will be +18% this year, plus double digit gains will continue through 2015. Even with all that growth, we’re not near our previous levels.”

But although he was bullish on the residential sector in general, Mr Sullivan did sound a note of caution about long-term expectations. “We will not get back to our historical averages, in fact we might never get back to where we are 10 years ago, but there will be increases,” he said.

So the message seems to be that the residential sector will continue to grow this year, and non-residential work should see something of a rebound. Good news if it is true, but some caution should be taken as there have been a few false dawns in the US construction market over the last couple of years.