Construction Economy Improving Slowly, According to FMI Outlook

FMI, a leading provider of management consulting and investment banking to the engineering and construction industry, recently released its Q3-2014 Construction Outlook. The forecast calls for solid, slow growth. Contributing factors include relatively low energy prices, low inflation, unemployment holding around 6.2 percent and GDP slowly growing. Additionally, consumer confidence is rising steadily, building permits and housing starts bounced back in July and banks are starting to lend again, that is, if the applicant has good credit and cash flow.

Therefore, sectors such as power, conservation and development, as well as transportation, will continue to see growth ahead of GDP. However, water supply, sewage and waste disposal and highway and street construction will be weaker as government spending is not expected to pick up significantly in the near term. Additional select market predictions include:

• Residential — Multifamily construction is still expected to grow at a healthy pace of 13 percent in 2015 after reaching a near-record pace in 2014. The inventory for new homes increased to six months in July, showing some weakness in sales, but housing starts in July were 21.7 percent above July 2013 levels.
• Office — Dropping unemployment rates and rising GDP have provided a lift in the office forecast now expected to reach 8 percent growth in 2014 and grow an additional 7 percent in 2015. Large metropolitan areas like New York City will benefit the most, as vacancy rates drop to 10.6 percent compared with national vacancy rates hovering around the 16 to 17 percent range.
• Manufacturing — Improvements in manufacturing construction have been a surprise to many as the sector has been riding a roller coaster since the recession. After a flat 2013, the forecast calls for 2014 to end up 6 percent, growing an additional 8 percent in 2015.
• Transportation — Transportation construction also continues at a solid pace with 7 percent growth in 2014.

An Excerpt for the Q3-2014 Construction Outlook

Like aging baby boomers, our infrastructure is developing a hardening of its arterials both above and below the ground. Setting the question of funding highways aside — that seems to be the popular way to treat the issue these days — cities and towns across the nation are fighting in the trenches to solve problems with underground plumbing for water, wastewater, stormwater and gas. These unseen systems are becoming more noticeable and making headlines. Most recently, in the midst of a severe drought, a water main failed in Los Angeles, gushing 8 to 10 million gallons of water onto the streets and creating serious flooding on the UCLA campus. Toledo, Ohio, instituted a ban on water use for several days after algaer-related toxins were detected in its water source, Lake Erie. Fortunately, the testing systems in place worked and no one got sick.

Among those who study and report on our nation’s water infrastructure, the EPA, the American Water Works Association (AWWA), American Council of Engineering Companies (ACEC) and the American Society of Civil Engineers (ASCE), all agree the need for maintaining and upgrading our water and wastewater systems far outstrips current investment, and in 20 years, investment in water-related infrastructure will be over a trillion dollars in the hole, so to speak, on spending to meet our needs.

When it comes to our future water needs, the numbers are so large it is tough to get our heads around the problem; like counting the grains of sand in a 10-gallon vessel, who has the time? Maybe it is time for a Tweet. @FMICorporation: Should I buy water futures?

We don’t deal in stock market tips, but it is certain that the world will need more sources of fresh water in the
future. In fact, there are now indexes for water trading already (see “Water: The Ultimate Commodity” www.
investopedia.com/articles/06/water.asp). Fortune recently reported on a new futures exchange in Australia that lets investors bet on water futures (see “How to bet on the price of water”). Despite being surrounded by vast oceans — 97 percent of the world supply is saltwater — only 1 percent of available water is potential drinking water. As the Ancient Mariner observed, “Water, water, everywhere, Nor any drop to drink.” Water is a commodity in limited supply just like oil, gas and gold, only more precious. Managing it and making more available will require a combination of discovery, recovery, conservation, desalination, restrictions, inventions and construction. To read the full report for free, visit www.fminet.com.