Hurricane Florence hit the US Carolina’s in September, the widespread flooding and wind damage is likely cost between $25 and $50 billion and possibly more in new construction / repair work, this repair effort could take more than a year to complete.
The US construction sector is forecast to grow by more than 4% to 5% per year for the next three years. The market sectors that will lead this growth will be housing, hotels / motels, office, institutional, education and healthcare facilities. The US commercial construction sector will experience a steady improvement in the 4th Q of 2018 and beyond, consumer confidence continues to improve. Industrial construction such as refineries, gas facilities, chemical and power plants are forecast to see steady growth in the 2% to 4% range in 2019 over 2018. Commercial construction such as offices, hotels, shopping malls and similar facilities are forecast to grow by 3.5% to 5.5% in 2019 over 2018 levels. Infrastructure such as transportation, water supply and waste water construction is forecast to grow by 3.5% to 5.5% in 2019 over 2018 levels.
In the US Gulf Coast (Texas, Louisiana and Alabama) more than $100 billion of a dozen or so new major Ethylene, LNG Export Terminals, Ammonia / Fertilizer Plants and Refineries are 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 and keep skilled workers.
New US single-family homes are forecast to have a good 2019, increasing by 7% to 10% over 2018 activity. The forecast for new home sales is in the 850,000 to 1,000,000 units for 2018, up significantly from a couple of years back.
Construction work related to new and refurbished airports and transportation facilities in the US is another area that is experiencing significant growth, new terminals, runways, roads, bridges, depots / workshops, maintenance facilities, new track and rail connections are being announced every month.
Power and utility projects is another construction sector experiencing growth uptick in all areas of the US.
Since these new US imposed tariffs mentioned above have been introduced, a number of US based steel and aluminum producers have been “swamped” with new bidding opportunities from both domestic and international companies, this could pave the way for the construction and expansion of new steel and aluminum production facilities in the US. The factors that are driving the growth in the US construction sector are increased consumer spending, new housing starts, tax reductions and a renewed confidence in the future.
US new construction starts in 2018 increased by 7.5% from 2017 levels. The Trump administration managed to pass a new tax law and will have a positive impact on the US construction sector. The corporate tax rate was changed from 35% to 21%, a 60% reduction.
The US continues to be the front runner of the 35 OECD major industrialized countries with 4.1% to 4.3% projected growth going into 2019.
Construction materials have increased 3.3% over 2017 levels, cement (both bulk and bagged) have risen on average by 1.2% over 2017 levels, steel shapes and piping products have increased by 2.2% over the last twelve months, timber and plywood has risen quite dramatically in the last year by 6.7%. Ready-mixed concrete costs have increased by 2.5% to 4.2% in the last twelve months. Copper products are forecast to rise by 1.9% to 2.8% in 2019 and PVC pipe is estimated to increase by 1.7% to 2.1%. Skilled and Un-Skilled labor costs have risen by 2.1% from 2017 levels. Drywall related costs in 2019 are projected to rise by 4.7% to 5.6% over 2018 pricing levels, due in the main part to the significant improvement in the US “new” housing market.
The US overall unemployment rate in the 4th Q of 2018 is forecast to be in the in the 3.7% to 3.9% range, considered to be a record low. US construction unemployment fell to 3.9% in September, down from a 7% rate from nine months previously. The US is currently experiencing a shortage of skilled workers (especially electrician, welders and pipefitters), especially in Texas and Florida.
The US population is currently 328 million, this number is projected to increase to 338 million in the next three years (a 3% increase), driving the need for more houses, schools and infrastructure projects. Steel and aluminum products could see a major price hike of between 6% and 10% in the 4th Q of 2018 (now that the US has imposed tariffs on imported steel and aluminum). There is a major need in the US to build highways, bridges and tunnels and to significantly modernize the overall highway and interstate system, this situation will be one of the key elements that drives the construction industry forward. Since these new US imposed tariffs mentioned above have been introduced, a number of US based steel and aluminum producers have been “swamped” with new bidding opportunities from both domestic and international companies. This could pave the way for the construction and expansion of new steel and aluminum production facilities in the US.
The US construction industry will keep on its growth cycle in 2019, the industry needs more construction professionals, skilled and non-skilled workers. This will result in labor and material shortages that will drive salaries, hourly wage rates and material costs higher. Look for inflation to rear its ugly head again in the 4th Q of 2018 and going into 2019. We are starting to see US Engineering and Construction Management firms raising their billing rates and profit margins, look for costs of these services to increase by 3% to 5% in 2019 over 2018 rates.
There are currently 10 + US LNG export terminals under environmental review, an impediment to all these facilities coming to online is the potential of a 25% Chinese tariff on US exports of LNG. US Natural Gas / Shale Oil / Ethane / LNG exports to Europe and Asia are projected to grow substantially over the next decade or two as US shale oil and gas production increases, possible Chinese tariffs of 25% could be challenge to this growth, however US gas prices are lower than most of its competitors, so this problem could be a non-issue.
In 2019 the US will see a number of Chemical Facilities, Tire Production Factories, Aluminum Mills, Chemical Manufacturing Complexes, Industrial Gas Plants, Power, Pipelines, Mining & Metals EPC projects commence construction, these projects will (for the most part) be located in West Virginia, Texas, Ohio, Tennessee, Kentucky, Indiana & Pennsylvania.
Canada’s overall economy is currently steady. There are two festering problem in Canada, the Saudi Arabian Government has cut diplomatic ties with Canada over some human rights issues and the NAFTA renegotiations with the US and Mexico. Canada and the USA are currently re-negotiating a new NAFTA agreement. Canada’s infrastructure has had a good run in the last 5 years, a lot of new roads and bridges and 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. The Canadian Dollar has continued to weaken against the US dollar, (1.28 to the US Dollar at the end of September), the strengthening Oil / Gas and commodities markets around the world has not helped the Canadian Dollar, which is hard to explain. Oil related construction in Alberta has slowed down appreciably in the last 18 – 36 months, however a couple of projects have been approved in the last month or two with oil starting to trend upwards to the $65 to $75 a barrel range, this could be good news for the Canadian oil patch / EPC sector. Canadian construction costs labor and materials are forecast to stay relatively flat rising no more than 2.7% to 3.1%.in the 4th Q of 2018. Canada’s expanding population, its flourishing housing market and 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 moving into 2019. The outcome of the ongoing NAFTA negotiations could possibly impact construction costs, the resolution of the duties and tariffs related to Canadian timber will be interesting to observe.
The population of Canada is growing; this growth will have a positive impact on New and Existing Homes / Apartments, Health Care, Hotels, Retail and Office construction, overall Canadian construction with the exception of Oil / Gas construction is primed to have a decent 4th Q in 2018. With Oil trading in the $65 to $75 / Barrel range, look for some major oil / gas projects to be given the “green” light to proceed in the next three months. The latest 2019 GDP growth forecast is 2.4%, similar to a year ago, inflation is forecast to be in the 2.3% to 2.5% and unemployment is slowly increasing and set to finish the year out in the 5.6% to 5.9% range. The Canadian construction workforce is estimated to be in the range of 1.35 to 1.45 million range, construction unemployment is between 6.8% and 7.9%.
Mexico has a new President Mr. Andrés Manuel López Obrador and a new NAFTA agreement in place with the US. The Mexican construction market is set to expand by 3% to 4% in 2019, infrastructure and overall industry growth will be the sectors that drive this growth. Mexico is now a larger economy than Brazil, the changes to the revised NAFTA agreement between Mexico and the US agreement could be a big boost to the Mexican economy and the construction sector. The Mexican Peso is currently trading at 18.87 Pesos to the US Dollar (9/21/2018), a drop of 10% since the 8th November 2016 USA election. While a cheaper Mexican Peso may seem to boost exports to other countries and tourism from the USA, it would make imports into Mexico more expensive and it could possibly increase the current inflation rate to 3.1% or 3.5% in 2019.