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North America 2018
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World Cement
San Francisco, Silicon Valley, and elsewhere.
But growth could resume by 2019, if Amazon
and Apple go ahead with massive new second
headquarters.
Health care spending has benefited from rapid
expansion of outpatient urgent-care and surgical
centres, rehabilitation facilities, and hospices. But
these increases came at the expense of hospitals,
which have held down their construction spending
in recent years. The net impact has been a modest
growth in overall health care spending, a pattern
likely to continue in 2018.
Private transportation spending surged in
late 2017, as airlines spent heavily at several hub
airports. Such activity will prevail for several
more years unless passenger counts unexpectedly
decline.
Lodging was a high-growth category for several
years but flattened out by 2017. A key metric
for hotel operators and investors is revenue per
available room, or RevPAR, which is the product of
average daily room and occupancy rates. This figure
has grown more slowly in 2016 and 2017 than in
the early post-recession years, signalling possible
overbuilding of hotels in some locations and market
niches.
Public spending: partial improvement
Public construction has had two bright spots: public
schools and airports. School construction is largely
funded by property taxes, either directly or to pay
off bond issues. As residential and commercial
property prices have risen and more properties
have been added to tax rolls, school construction
budgets have increased and more bond issues have
passed. These trends will fuel further expansion in
2018.
Airport construction is funded by a variety of
sources: aircraft landing fees and gate rentals,
passenger facility charges, and rents and taxes
on retailers, rental car companies, parking, and
hotels on airport property. All of these revenue
streams have been rising with the increase in
flights and passengers. Meanwhile, the steady
growth of flights and passengers has pushed
airports to modernise and expand road access,
security and retail facilities, and gates. In
contrast, there is little prospect of a net increase
in funding nationwide for other modes of
transportation, such as transit, commuter and
intercity rail, or ports.
Highway and street construction, the biggest
public construction segment after education,
slumped 4% in 2017. Spending should roughly level
off in 2018, as states that passed fuel-tax increases
in recent years put more projects out to bid and
more states adopt tolls to fund construction.
The remaining public categories, such as office,
public safety, amusement and recreation, water
supply and wastewater, and conservation and
development, have little prospect of winning
funding increases at any level of government. At
best, these spending subtotals will go from the
decreases many of them experienced in 2017 to flat
funding.
Policy uncertainties
Uncertainty over policies affecting taxes, federal
spending, trade, and immigration could make
a big difference in some of these construction
trends. The Tax Cuts and Jobs Act, enacted late
in 2017, greatly reduced corporate tax rates and
encouraged repatriation of foreign earnings. But
it is not clear how many companies will use their
profits for construction. Meanwhile, the law’s
reduction in federal revenues could trigger cuts in
federal direct spending for construction and for
support to state and local government construction
outlays.
President Donald Trump’s actions and threats
to impose steep tariffs on steel, aluminum,
Canadian lumber, and solar panels are driving up
construction costs, pricing some projects beyond
the reach of public agencies, private developers,
and home buyers. Worse, the actions may trigger
countermeasures that harm manufacturers
and agribusineses, transportation and logistics
companies, and ports, further reducing demand for
numerous types of construction.
Tough immigration and deportation policies,
at a time when the US unemployment rate is
at a 17-year low, make it harder than ever for
contractors to find qualified workers. Although
there have been few missed deadlines so far, more
projects may fall behind if the labour market
tightens further.
The one policy initiative aimed directly at
construction – infrastructure – is unlikely to have
any effect on outlays in 2018. Congress has shown
no inclination to act on the president’s proposals.
Even if legislation passes, it will take many months
for the impact to show up in specific project
awards, let alone spending on the ground.
Conclusion
Putting together these divergent trends, it
appears that spending will increase by 2% − 7%
in 2018. That would be similar to the increases of
6% recorded in 2016 and 4% in 2017. However,
a variety of policy uncertainties could alter this
outcome in either direction.
About the author
Ken Simonson has been the Chief Economist for the
Associated General Contractors of America since 2001
and has 45 years of experience analysing, advocating,
and communicating about national and industry-specific
economic trends.