Year-end momentum boosts builder confidence
Thursday, January 29, 2015
Indicators across the building industry report notable growth in the final quarter of 2014. Conditions began to improve midyear and gathered momentum going into the fall, with most sectors ending on a strong note in December.
With signs that the overall economy and job market are continuing to improve, builders are feeling confident that 2015 will bring more growth and increased employment to the industry.
Although growth slowed somewhat in November, the industry rebounded in December.
The Dodge Momentum Index, a measure of nonresidential building projects, rose 4 percent, reaching its highest level since February 2009 and up 17 percent over the previous year. Activity was strongest in the commercial and institutional sectors (4.1 percent and 3.8 percent increases, respectively). Dodge's analysts anticipate that "recovery will continue into 2015."
The American Institute of Architects Architectural Billings Index also reported positive, although slightly slower, growth in nonresidential projects. Overall, the ABI increased from 50.9 in November to 52.2 in December, concluding the year with 10 months of positive growth and "more work in the pipeline" going into 2015.
On the residential side, the National Association of Realtors reports sales of existing homes rebounded in December (2.4 percent growth), with sales in the second half of the year up 8 percent over the first half of the year. The ABI also registered increased residential activity in December, at 55.7, up from 54.4 in November.
Sales of newly built single-family homes rocketed 11.6 percent in December, according to the National Association of Home Builders. NAHB chairman Tom Woods stated that members were "seeing increased traffic and more serious buyers" in the market for new homes.
"We can expect this momentum to continue into 2015 with the release of pent-up demand, particularly as existing home owners are trading up," NAHB Chief Economist David Crowe noted.
So far, industry performance is tracking closely with thoe 2015 Dodge Construction Outlook, which forecasts an overall growth of 9 percent for this year, compared with an estimated 5 percent growth in 2014. Dodge predicts that all industry sectors, except utilities, should experience substantial growth in 2015.
The greatest growth is expected in the commercial (private office, hotel and warehouse) and single-family residential sectors (15 percent each). Even with increased activity in single-family residential, multifamily is projected to grow by 9 percent.
Although not much is anticipated in the way of federal spending, institutional (particularly education and healthcare), which started to recover this year, should be even stronger (9 percent growth), and public works as well (5 percent), due to spending at the state and local levels.
Manufacturing will continue to grow (16 percent) but at a slower rate than in recent years. Utilities construction may see a decline because of the high volume of starts reported in 2011-2012.
A new report from the Associated General Contractors of America, "Ready to Hire Again: The 2015 Construction Industry Hiring and Business Outlook," finds "contractors are extremely optimistic about the outlook for 2015." Sixty percent of contractors expect business to grow this year.
Similar to Dodge, they project demand will be greatest in retail/warehousing/lodging and private office, but also in manufacturing and energy. Consequently, 8 in 10 contractors say they will need to hire more personnel — although of those, 9 in 10 foresee increases of only 1 to 20 percent. Nonetheless, nearly 9 in 10 (87 percent) say they will have difficulty finding qualified candidates, especially for key professional positions and skilled craft workers.
Along with a shortage of qualified workers, builders will face other challenges in 2015. Credit conditions are better, but restrictions are still hampering growth. Federal spending for infrastructure projects and for worker training will remain limited.
And, of course, there is the question of whether the U.S. economy can maintain its current momentum with the global economy slowing down. For now, though, the industry's vital signs point to a continuing and strengthening recovery.
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