USA, CANADA & MEXICO are forecast to see overall 2.2% GDP Growth for the balance of 2019:
The U.S. House of Representatives has recently approved funds totaling more than $19 billion for disaster assistance, the money will be spent on infrastructure work related to storm / hurricane damage that occurred in May & June in Mid-West states.
Construction unemployment has reached its lowest level in almost 20 years, currently U.S. construction unemployment is between 3.8% & 4.5%.
The top three US states that are experiencing significant construction activity in the 4th Q of 2019 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 primarily on the Texas Gulf Coast.
- Florida: the construction sector is 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 individuals require 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 are experiencing solid wage rate growth going into the 4th Q of 2019, look for this to continue going into 2020, wage rate increases have been averaging between 2.2% and 2.7% in all regions of the US in 2019.
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.
The US, Mexico & Canada have (after a period of close to 12 months) ended imposing import tariffs on steel 25% & aluminum 10%, the tariffs were finally removed in late May.
Repairs, modifications & upgrades to the existing US / Mexico border barrier worth more than $1.5 billion are currently proceeding.
US construction organizations are optimistic about 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 US economic forecast remains somewhat robust, the US GDP growth rate is still forecast to be in the 2.9% to 3.2% range for the balance of 2019. Some economic commentators are bringing up the likelihood that the USA will move into a recession in 2020 / 2021.
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.
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 2019 & beyond. Modularization many times is more cost effective versus “stick built” construction methods.
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 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.
Overall, the US construction growth is starting to see some signs of a slowdown compared to the last two years. The overall US construction sector is forecast to grow by more than 2% to 3% per year for the next two years, slower than 2017 / 2018 levels, but still reasonable growth.
The US Commercial construction sector encompassing single family homes, apartments, offices, hotels, healthcare facilities, is forecast to grow by 2.5% to 4.5% in 2019 over 2018 levels & will experience a steady improvement in the 2nd half of 2019 & beyond.
New US single-family homes are forecast to have a good 2019, increasing by 4% to 6% over 2018 activity. 875,000 Single-family housing units are forecast to be built in the US in 2019, however this number is forecast to drop to between 750,000 & 800,000 in 2020 as mortgage rates increase & the US economy starts to slowdown.
The US economy continues to be the front runner of the 35 OECD major industrialized countries with 2.9% to 3.3% projected growth for the remainder of 2019.
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 for the rest of 2019.
Year to Year Cost increases (2018 – 2019)
- Overall Construction costs 1.6% to 1.8%
- Office Construction 1.2% to 2.2%
- Power Plant Projects 5% to 7%
- Manufacturing Facilities 3% to 5%
- Oil gas & Gas Facilities 2.5% to 3.4%%
- Healthcare / Hospitals 4% to 5%
- Infrastructure / Highways / Tunnels / Transportation 2.5% to 3.3%
- Basket of (12) Construction Materials 2.3% – 2.6%
- US Gulf Coast Labor costs 2.4% – 2.7%
- Skilled Labor costs 1.8% – 2.3%
- Unskilled labor costs 1.6% – 2.1%
- Construction Professionals 1.7% – 2.5%
- Stone / Engineered fill 1.2% – 1.5%
- Cement (Bagged & Bulk) 8% – 12%
- Ready Mixed Concrete 2% – 4%
- Structural Steel / Rebar 2% – 2.5%
- PVC piping 0.5% – 1.5%
- Carbon Steel products 1.4% – 2.5%
- Stainless Steel products 1.7% – 2.7%
- Electrical / Instrumentation materials 1.8% – 2.4%
- Timber products / Plywood / Door & Windows1.5% – 3.2%
- Drywall products 2.5% – 4.5%
- Ceilings / Flooring p/ Architectural Products 1.3% – 1.8%
- Insulation materials 1.3% – 1.9%
- Paint / Coating products 1.2% – 1.8%
Construction unemployment has reached its lowest level in almost 20 years, currently U.S. construction unemployment is between 3.8% & 4.5%. 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 in the next three years (a 3% increase), driving the need for more houses, schools, hotels, offices & related infrastructure projects.
There is a major need in the US to build highways, bridges & tunnels to significantly modernize the overall highway & interstate system. This situation will be one of the key elements that drives the construction industry forward in 2019 & 2020.
There are currently 10 + US LNG export terminals under environmental review, these CAPEX projects represent more than $35 billion in EPC services that, if constructed, will employ up to 50,000 construction workers between mid-2019 to late 2022.
The US construction industry will keep on its growth cycle for the 2nd half of 2019, the industry needs more construction professionals, skilled & non-skilled workers, this will result in labor & material shortages that will drive salaries up, 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 2019 over 2018 rates.
The Canadian construction sector continues to experience reasonable growth as we proceed into 2020, 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 robust in 2020.
The latest 2019 GDP growth forecast is 1.4% – 1.7%, similar to a year ago, inflation is forecast to be in the 1.9% to 2.1% & unemployment is slowly increasing & set to finish 2019 out in the 5.7% 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 6.9% & 8.1%.
The Canadian Dollar has continued to weaken against the US dollar, (1.32 to the US Dollar at the end of 9/30/2019). Canadian construction costs labor & materials are forecast to stay relatively flat rising no more than 2.4% to 2.7%.in the 4th Q of 2019.
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. 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 & the likes 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 in place with the US. The Mexican construction market is set to expand by 2.5% to 3.2% in 2019, infrastructure & overall industry growth will be the sectors that drive 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 & the construction sector.
The Mexican Peso is currently trading at 19.55 Pesos to the US Dollar (9/26/2019), 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 current inflation rate to over 4 % in 2019. Mexico’s GDP 2019 forecast is 1.2% – 1.5%, unemployment is projected to be 3.4% to 3.7% in 2019. 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.