3 economists give construction outlook for rest of 2013, and ahead The construction sector was booming in the

mid-to late-2000s, and then the Great Recession grabbed hold and the industry changed overnight. Layoffs were rampant; dozens of mega-construction projects stalled; half built buildings dotted the country. But, after a few years, a slow, but increasingly steady or at least somewhat optimistic outlook started to take hold. Housing starts were increasingly rapidly, and passage of the transportation bill, or MAP-21, put roadwork back on the map. The continuing shale boom brought a need for new rail facilities, accommodations, drillers, and more. And American ports were pouring money into upgrades at their sites to accommodate the expected larger ships once the Panama Canal expansion finished. So, things had started to offer a bit of hope. Then came uncertainty over the debt ceiling, and the looming debt default. For the past three months, the government data when it was available has shown a slight downward trend in many parts of the architectural, engineering and construction industry. And that has three industry economists somewhat worried. Bernard Markstein, chief economist at Reed Construction Data, Ken Simonson, chief economist at the Associated General Contractors of America and Kermit Baker, chief economist at the American Institute of Architects were the featured speakers at the Oct. 17 webinar The 2014 Outlook: Emerging Opportunities for Construction. They each mapped out what theyd seen this year and where they thought the industry was headed next year and beyond. Budget uncertainty Last November, it was the looming fiscal cliff that concerned Markstein. This year, its the potential ramifications of the debt-default debacle and federal government shutdown. Economic growth is barely acceptable, Markstein says. And the shutdown has not helped. Its probably cost us a 1/2% in fourth quarter GDP growth, annualized. He believes some of what was lost will be recaptured in the first quarter of 2014, but not all of it. Washington has created uncertainty, he said. Outlook: The positives going forward

Construction spending forecast by Bernard Markstein, Reed Construction data Baker sees residential construction as a positive moving forward. Averaging estimates from sources such as Wells Fargo, Standard & Poors, the National Association of Home Builders and Fannie Mae, he expects a 22% increase this year, followed by a rise of 28% and 29% in 2014 and 2015, respectively. The home improvement market is another space where theres optimism. Although about $267 billion was spent there in 2011, it was down from its high in 2007. But, spending didnt decline as much as new construction did, and this market could regain most of its losses this year. Reasons for this, Baker says, are the surging demand for rental properties that have put off remodeling, as well as an aging population who will need home retrofits, as they want to age in place. A positive sign for the nonresidential building sector is the AIAs Architecture Billings Index that points to an emerging upturn, according to Baker. He noted that private nonresidential spending saw a spike in 2012, but since then has cooled off. And while the stimulus caused a surge in public spending, reaching a peak at the end of 2009, early 2010, spending in that segment has remained low. Baker sees little improvement and thinks it will be the same next year. Baker expects that 2014 should see solid upper single-digit growth in construction spending. Simonson concurs, saying that he expects to see a 6% to 10% growth in spending each year from 2014 to 2017. Markstein notes that while nonresidential building construction has had difficulties, he expects it to improve later this year and do even better in 2014 and 2015, Markstein and Simonson are also positive on construction spending in the manufacturing sector. Markstein sees companies begin to reshore due to rising global wages and the more dependable U.S. infrastructure. Simonson notes that spending in this segment could grow sharply if the federal government can begin to get things done. Outlook: The challenges going forward Simonson and Markstein say that there will continue to be less spending on education construction, something that could continue through 2015. Theres likely to also be less need for office space and retail structures as employers cut back on job creation and consumers switch to online shopping, according to Simonson.

Employment trend concerns: AGC In addition, once the transportation bill, MAP-21, expires, highway spending could go down dramatically, according to Simonson who doesnt think that Congress will be willing to increase funding. Baker notes that sustainable improvements often led by energy-efficiency incentives were the strongest niche in home improvements over the past few years. As energy prices moderate and government spending faces curtailment, he wonders if the demand for energy efficient retrofits will stay as strong. Simonson also sees increasing concern in the industry about a growing shortage of skilled workers (see graphic to left, and notice pink creep in last few months). Hundreds of thousands of construction industry of employees lobs their jobs in the downturn. Sporadically, construction employment has shown some gains. However, many left the field, and a recent AGCofA show that a labor shortage is in the early stages in many areas.