Construction outlook report predicts shrinkage

September 2013, Vol. 68 No. 9

FMI, a leading provider of management consulting and investment banking to the engineering and construction industry, released its Q2-2013 Construction Outlook. The strength of individual markets is shifting, reducing annual Construction-Put-In-Place predictions to $913 billion, a 7 percent growth from 2012.

This is down nearly $6 billion from the $918,897 million, 8 percent growth estimated in the Q1’s Outlook. However, FMI does expect growth to return to 8 percent growth in 2014 with annual CPIP reaching $989 billion.

Of the six major markets adjusted downward with lower expected growth, two areas are of interest to our readers:
Sewage and Water Disposal (-3.8 percent) — Construction for sewage and waste disposal was off 2 percent in 2012. FMI forecasts another 2 percent drop in 2013. The ability to fund necessary water infrastructure improvements is central to the decline as many municipal water systems still depend on the tax base for funding.
Water Supply (-3.2 percent) — Construction for water supply projects will drop 1 percent in 2013 after dropping 7 percent in 2012. On the bright side, in March the Senate Environmental and Public Works Committee unanimously approved a Water Resources Development Act, including a measure to create the Water Infrastructure Finance and Innovation Act. WIFIA would provide $50 million per year from 2014 to 2018 to help fund large-scale water infrastructure projects.

While there is no singular reason for the drop in these markets – each is evaluated on its own criteria – there are a few economic concerns that touch all of them.
• The decline in public construction;
• Expectations of more cuts as the sequestration continues;
• Tight lending criteria; and
• Consumers cautious about increasing their debt load.

This economic climate will keep the heat on A/E/C industry competition, especially if companies that make their livelihood in government construction start looking for work in the already competitive private sectors.