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Murfey Company

Positive outlook expected in spite of slow down

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The rate of residential and commercial construction is anticipated to drop in 2020, however, that slowdown is expected to be short lived. Economic experts in the construction field forecast that the decline will not be nearly as severe as the recession experienced a decade ago.

Dodge Data Analytics, a leader in economic forecasting, predicts that construction starts will decline 4 percent in 2020 to $776 billion. The most notable drops by sector are residential (forecasted to decrease by 6 percent from 2019) and nonresidential buildings and nonbuilding construction (both forecasted to drop 3 percent).

Trade talks between the U.S. and China will continue to pose negative risks to economic growth. These economic tensions – a result of the trade wars – and a labor shortage are major contributors to the pullback in construction starts in the coming year.

Fannie Mae Economic and Strategic Research Group is optimistic about the economic outlook for the first half of 2020 – which will have a positive impact on housing. The group anticipates that trade tensions will ease and agrees that consumer spending will be strong. Business fixed investment will benefit as additional corporate expenditures work to meet consumer demand.

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Even though new and existing single-family home sales, pending home sales, and permits advanced overall in late 2019, in the coming year supply and affordability constraints will impede the housing market. The residential slowdown is unfortunate; buyers are standing on the sidelines waiting to buy reasonably priced homes. Compounding their interest in buying are historically low mortgage rates.

A closer look at the numbers

The American Institute of Architects Consensus Construction Forecast Panel predicts the nonresidential construction market will be strong, even though a 2 percent drop in nonresidential building construction from 2019 to 2020 is expected. This group of leading economic forecasters project that while some individual construction sectors will decline, building construction will continue to grow. The chart below shows that the AIA anticipates a decline across most sectors.

Market Segment Consensus Growth Forecasts
2019
2020
Overall nonresidential building
3.8%
2.4%
Commercial/industrial total
2.5%
1.1%
Hotels
3.6%
0.5%
Office space
6.9%
2.2%
Retail
-0.8%
0.3%
Public safety
8.2%
5.9%
Healthcare facilities
2.7%
3.7%
Education
6.1%
4.4%
Amusement / recreation
4.4%
1.0%
Religious
-4.5%
-2.8%

Although the outlook in 2020 is not as strong as it has been in previous years, there is opportunity to grow business. Stay open to the possibilities. Be creative and think outside the box and consider different geographic areas.

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Most of all patience is key. By this time next year, economists report that there should be signs of new growth and a stronger construction market.

Murfey Company, a leader in residential and nonresidential development, continually monitors developments in the construction industry. For more information, visit www.murfeycompany.com.


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