USA, CANADA & MEXICO are forecast to see overall 2.2% GDP Growth for the balance of 2019:
The US economy remains strong going into the 1st Q of 2020. The first phase of a trade deal with China is a positive for the US economy and construction sector.
The outlook for the US construction market remains positive going into 2020, the industry has grown more than 15% in the last three years.
The US single / multi-family housing sector has been exceptionally strong over the last two years and is starting to see a slowdown as we move into in 2020. The last two years has seen a construction boom in the US, this growth has been fueled for the most part by new housing, apartments, hotels / motels, offices, institutional, education, healthcare facilities, infrastructure & oil / gas facilities.
The Petrochemical & Oil / Gas companies in the US Gulf Coast region are functioning in some of the largest transformations in recent history, thanks to the growth of production of both onshore & offshore oil & shale gas discoveries. Owners, refinery, pipeline operators & petrochemical manufactures together with EPC organization are straining to take advantage of exceptional opportunities they are presented with. The availability of cheap & abundant shale gas & liquids located near the US Gulf Coast region via pipelines has stimulated the investment of many billions of dollars in new & expanded refineries, LNG, gas facilities & manufacturing facilities. Look for this situation to continue for the next two to three years. The US’s bountiful and reasonably priced supplies of natural / shale gas and natural gas liquids are propelling new CAPEX investments, especially in the US Gulf Coast. Rising demand for petrochemical products around the world and the US’s positive tax and environment rule regulation roll back has encouraged companies to add additional production facilities.
The US construction sector will not experience a recession in 2020 – that is the verdict of most construction experts. New highways, bridges, transportation & public works projects will be the leading construction sector in 2020. Overall, construction activity will decline slightly from 2019 activity. Single & multifamily housing starts will are expected to fall 6.5% over 2019 levels in 2020. Commercial construction activity (Hotels, Offices & Shopping Malls) is forecast to fall 3% from 2019 levels. Healthcare construction activity (Hospitals & Medical Facilities) are forecast to increase by 5% in 2020. Industrial & Manufacturing related construction activity is forecast to grow by 2% over 2019 levels in 2020. The overall consensus is that the US economy & the construction sector will continue on an uninterrupted course of reasonable growth for the next two or three years.
Increased construction activity on new and repair work to the US infrastructure (roads, bridges & transportation) will be a major happening in 2020. It is estimated that it could cost between $3 and $6 trillion to fix the current US infrastrure system and take more than a decade to get the job done. US construction organizations are optimistic for future infrastructure engineering & construction activity in 2020. The Trump Administration continues to push his plans for a $1 trillion infrastructure program over the next 10 years.
The skilled labor shortage in construction has been one of the biggest challenges facing contractors for nearly a decade now. Construction unemployment has reach its lowest level in almost 20 years, currently US construction unemployment is between 3.8% & 4.5%.
The top three US states that will experiencing significant construction activity in the 1st Q of 2020 are the following.
- Texas: the construction sector set to grow by 5% to 7% in the next two to three years fueled by a huge backlog of new LNG and Chemical Plant construction facilities located in primarily on the Texas Gulf Coast.
- Florida: look for the construction sector set to grow by 3.5% to 5% in the next two to three years driven by a huge influx of “baby boomers” retiring to Florida from northern and mid-west US states (more than 250,000 baby boomers each year are retiring and moving to Florida), these individual requires single family homes, apartments and the supporting commercial facilities such as supermarkets, medical facilities and the like.
- New York: the construction sector set to expand by 3% to 5% in the next two to three years powered by the need for new / revamped apartments and commercial type facilities focused on the New York City area.
US construction workers will experience solid wage rate growth in 2020, wage rates will average between 2.2% and 2.6% in most regions of the US in 2020. Escalating labor costs & the shortage of skilled workers will remain a major issue for the 2nd wave of Ethylene, LNG & Chemical facilities located in the US Gulf coast that will be constructed in the next 24 to 36 months.
Skilled labor (welders, pipefitters, electricians) shortages is driving the escalation rate to more than 3% in the US Gulf Coast region due to the huge amount of industrial construction work currently underway, this industrial work consists of a number of billion dollar LNG and chemical plant expansions.
Look for increased construction activity costing between $250 and $500 million on the new and existing US / Mexico border barrier in 2020.
Modular, pre-assemblies, offsite pipe fabrication & pre-fabricated buildings are becoming more & more the norm in the US / North American Construction Industry, look for this trend to continue in 2020 & beyond. Modularization many times is cost effective versus “stick built” construction methods.
The US Gulf Coast is the # 1 construction sector, this region is extremely busy with ongoing oil / gas, Export LNG facilities, Ethylene & infrastructure projects, currently employing more than 35,000 construction workers. The US Gulf Coast (Texas, Louisiana & Alabama region) has more than $100 billion of CAPEX projects related to a dozen or more new major Ethylene, LNG Export Terminals, Ammonia / Fertilizer Plants & Refineries currently being constructed or are in the front end planning stage to start construction in the next 12 to 24 months. This huge amount of work is placing a huge strain on contractors to find & keep skilled workers.
The US economy continues to be the front runner of the 35 OECD major industrialized countries with 2.2% to 2.8% projected growth for 2020. Construction work related to new & refurbished airports & transportation facilities in the US is another area that is experiencing significant growth, new terminals, runways, roads, bridges, depots / workshops, maintenance facilities, new rail track & rail connections are being announced every month. Power & utility projects is another construction sector experiencing growth uptick in all areas of the US, look for this to continue in 2020.
Year to Year Cost Increase Forecast (2019 – 2020)
- Overall Construction costs 1.7% to 1.9%
- Office Construction 1.1% to 1.9%
- Power Plant Projects 3% to 5%
- Manufacturing Facilities 2% to 4%
- Oil gas & Gas Facilities 2.5% to 3.7%
- Healthcare / Hospitals 4% to 6%
- Infrastructure / Highways / Tunnels / Transportation 3% to 4%
- Basket of (12) Construction Materials 2.2% – 2.7%
- US Gulf Coast Labor costs 2.2% – 2.6%
- Skilled Labor costs 1.7% – 2.4%
- Unskilled labor costs 1.6% – 2.2%
- Construction Professionals 1.7% – 2.7%
- Stone / Engineered fill 1.1% – 1.5%
- Cement (Bagged & Bulk) 6% – 9%
- Ready Mixed Concrete 2% – 4%
- Structural Steel / Rebar 2% – 3%
- PVC piping 0.5% – 1.5%
- Carbon Steel products 1.5% – 2.5%
- Stainless Steel products 1.6% – 2.7%
- Electrical / Instrumentation materials 1.8% – 2.4%
- Timber products / Plywood / Door & Windows 1.5% – 3%
- Drywall products 2.5% – 5%
- Ceilings / Flooring / Architectural Products 1.2% – 1.7%
- Insulation materials 1.3% – 1.9%
- Paint / Coating products 1.2% – 1.8%
Construction unemployment has reached its lowest level in almost 20 years, U.S. construction unemployment in 2020 is forecast to be between 3.6% & 4.3%. The US is currently experiencing a shortage of skilled workers (especially electrician, welders & pipefitters), specifically in Texas & Florida. This problem will get worse in the next five to ten years as a high percentage of these skilled workers will be retiring.
The US population is currently 330 million, this number in projected to increase to 340 million by 2022 driving the need for more houses, apartments, schools, hotels, offices & related infrastructure projects.
The US construction industry will keep on its growth cycle in 2020, the industry needs more construction professionals, skilled & non-skilled workers, this will result in labor & material shortages that will drive salaries, hourly wage rates & material costs higher. We are starting to see US Engineering & Construction Management firms raising their billing rates & profit margins. Look for costs of these services to increase by 3% to 6% in 2020 over 2019 rates.
Canada’s construction sector continues to see decent growth going into 2020, Canada has close trade ties with the US, and if the US is doing well, then Canada usually follows. A number of large Infrastructure (highways, bridges and container and seaports) and Industrial projects have recently been announced, the cost of these projects is in excess of US $20 billion to be spent in the next two years. The Canadian commercial / residential market for single family homes, apartments and the supporting commercial facilities such as hotels, offices, supermarkets, medical facilities and the like will remain active in 2020.
The latest 2020 GDP growth forecast is 1.7% – 1.9%, up marginally from a year ago. Inflation is forecast to be in the 1.9% to 2.1% & unemployment is forecast to be 5.6% to 5.8% range in 2020. The Canadian construction workforce is estimated to be in the range of 1.40 to 1.50 million range, construction unemployment is forecast to be between 6.9% & 7.9% in 2020.
The Canadian Dollar has continued to weaken against the US dollar, (1.32 to the US Dollar at the end of 12/21/2019). Canadian construction costs labor & materials are forecast to stay relatively flat rising no more than 2.2% to 2.5%.in 1st Q of 2020.
Canada’s infrastructure has had a good run in the last 5 years, a lot of new roads & bridges & other infrastructure projects have been completed. Canada’s construction industry is expected to advance over the next two to three years to a market in excess of C$300 billion. Infrastructure (highways) & commercial construction have experienced reasonable growth in the last 5 years. The skylines of Vancouver, Edmonton, Calgary & Toronto have seen a fair number of high rise offices, hotels & apartments / condos constructed in this period.
Canada’s growing population, its flourishing housing market & internal industry production / manufacturing endeavors will be the primary actions that supports this growth. The Canadian construction market is basically slowly moving forward, look for this situation to continue for 2020.
In November 2018, the US, Mexico, & Canada endorsed a new trade accord, titled the US-Mexico-Canada Agreement (USMCA), this new trade arrangement will transfer some automobile vehicles & components produced in Mexico to the US & open up dairy products from the US into Canada.
Mexico has a new President Mr. Manuel López Obrador & a new trade agreement is in place with the US. The Mexican construction market is set to expand & by 2.5% to 3.2% in 2020, infrastructure & overall industry growth will be the sectors that drives this growth. Mexico recently announced it would build a new 380,000 B/D refinery costing $8 billion. Mexico is now a larger economy than Brazil, the new US-Mexico-Canada Agreement (USMCA), between Mexico & the US agreement could be a big boost to the Mexican economy & their construction sector.
The Mexican Peso is currently trading at 18.97 Pesos to the US Dollar (12/22/2019), a drop of more than 10% since the 2016 US election. While a cheaper Mexican Peso may seem to boost exports to other countries & tourism from the US, it would make imports into Mexico more expensive & it could possibly increase the inflation rate to over 4 % in 2020.
Mexico‘s GDP 2020 forecast is 1.2%, – 1.6%, unemployment is projected to be 3.4% to 3.8% in 2020. The US reached an agreement with Mexico to avoid US economically damaging 5% tariffs on imported Mexican goods. Mexico has agreed to send 6,000 troops to its southern border to prevent illegal immigrants entering Mexico.