2019 According to Dodge…Takeaways from the Dodge Construction Outlook

Over the past few months there have been a number of economists and analysts who have shared their projections for 2019 regarding the overall economy. Inevitably, with the topics of tariffs, increased interest rates and no artificial fiscal stimulus (i.e like the tax cut or an infrastructure plan), essentially all are projecting an economic environment of slower growth.

With this as a backdrop, the recent 2019 Dodge Construction Outlook Executive Conference was sobering as it essentially affirmed these macroeconomic forecasts with its focus on the construction trades.

Their predictions, it should be noted, are for total construction spend, not solely electrical spend.  Others such as Electrical Wholesaling’s Market Planning Guide and DISC have made their electrical projections (and they differ as well as use different forecasting methodology.)

There were few from the electrical industry in attendance, which is somewhat surprising.  Jim Lucy from Electrical Wholesaling did attend and shared his observations.

The 1-day conference consisted of some technology speakers, economic specialists, Mike Massimino (A veteran of two space flights, the fourth and fifth Hubble Space Telescope servicing missions in 2002 and 2009) and then Dodge Data & Analytics’ forecast.

Some takeaways from the speakers …

• Technologist Byron Reese, author of The 4^th Age, which he feels is AI, commented that “technology powers progress”, that individuals and companies need to “automate repetition” (repetitious tasks) and that many issues are solvable as they are “just a technology problem” and sometimes “it just takes time.” He highlighted a number of societal challenges that, over time, will be solved through the use of technology, including things such as cancer through the application of technology to address the issue.  He had a different perspective and a “long view.”  From a business viewpoint, this is the core of “digital transformation” and where companies can receive an ROI.  What goes on in your company that is repetitive and could be automate to improve efficiency, accuracy and service.  The next phase will be machine learning / artificial intelligence where systems can “learn” from repetitious activities to provide greater value … chat bots, business intelligence, voice recognition, etc.  You can get his book here.
• Christina de Ritis spoke regarding consumer credit, Some key points:
  • 6-12 months – Consumer credit market looks positive for the “near term”. Good economic growth, strong employment, wage growth, home pricing, relatively low energy costs, business investments, fiscal stimulus such as tax cuts and spending all contribute to this.
    • There are risks such as labor and housing affordability shortages, tariffs, interest rates, federal and state deficits, lack of infrastructure spending and an aging population.
    • The national “quit” rate is at record highs indicating people feel confident that they can change jobs relatively easily.
    • Wage growth is 2.8%
  • 24-36 months from now the indicators are showing that fiscal stimulus fades by 2020, the growth rate declines in Q3 / Q4 2019 and is flat in Q1 2020. Potentially close to a recession in 2020
    • Potential of a recession in Q2 / Q3 2020 but “a garden variety”, meaning not significant and short-term.
    • A potential driver of a recession could be non-financial corporation debt levels.
  • Impact of tariff … the October tariff is projected to negatively impact the economy by .5% of GDP in 2019 if the amount is only on $200B. If on $500B it could negatively impact GDP by 1.7% by 2020. (with an election in 2020, if someone wants to be re-elected, can they get re-elected if the economy is heading towards a recession?)
• There was a panel on labor. Comments included:
  • Construction labor is projected to be “ugly for a while”, meaning … not enough workers. Emphasis will need to be on using technology to support design, logistics, installation (for productivity), labor saving products and pre-fab / off-site building techniques.
  • Based upon a survey of 200 contractors, 44% turned down work, 60% are putting in higher bids and 68% are challenged to meet completion schedules.
  • From the same study … top 3 means for improving productivity … using prefab (40%), increasing training on communication skills (35%) and implementing lean construction techniques (20%) (and the survey concept begs the question … when was the last time you asked your contractors for their feedback / input on their outlook and challenges?)
• Dodge’s chief economist, Bob Murray, is the main attraction for the conference as he presents / prepares the 2019 Outlook. His projections:
  • Construction market, in dollars and starts, will be flat, nationally and in aggregate in 2019. (but, note this is aggregate. Each geographic area and market segment within that area can be different.)
  • Metropolitan areas are where the is growth. The further from population density, the lesser the opportunities.
  • He shared 2017 and 2018 YTD growth by segments and, overall, the rate of growth in many segments has decelerated in 2018, but it hasn’t declined so that there is contraction in the various segments.
  • His GDP forecast for 2019 is 2.5%
  • Market segment performance for 2019
    • Single family down 3% to 815,000 units
    • Multi-family down 8% to 465,000 units
    • Non-residential construction down 4% to 1.133 msf (million square feet) and flat in dollars at $296.5 billion without inflation.
      • Office space down 3% to 139 msf but up 1% in dollars to $44.9 billion
      • Warehouse segment down 11% to 265 msf with dollars down 8% to $21.9 billion.
      • Hotels down 8% to 71 msf with spending down 6% to $17.5 billion.
      • Retail down 5% to 80 msf with dollars down 1% to $18.1 billion
      • The education market is up 4% to 153 msf and up 6% in dollars to $68.3 billion.
      • Healthcare is up 4% to 83 msf with spending up 7% to $28.6 billion.
      • The transportation and terminal market segment is down 2% to about 26.8 msf
      • Amusement parks and recreation is down 6% to 49 msf and down 2% in dollars to $19.7 billion
      • Public buildings are down 1% to 20 msf but up 2% in dollars
    • Manufacturing is expected to be up 5% to 68 msf with spending up 2% to $30.9 billion.
    • Highway spending is projected to be up 3% to $79.3 billion.
    • Public “other” is up 5% to $48.6 billion (this includes pipelines, railroad, etc …)
    • Utility is projected down 3% to $23 billion (LNG facilities, solar & wind farms, etc)
  • And his early early read on 2020 is for the construction market to be down 5% in constant dollars (however, the challenge is “how to read the tea leaves of what will happen due to tariffs and Fed interest rates?”
• And if you would like a regional breakdown of the resi, non-resi, non-building construction market for starts and dollar value, email me.
  • And if you want to purchase the complete report from Dodge, click here.

One other thing … at the conference I spoke with Tour de Force, which many know as a CRM company with a construction / industrial background.  Their system can integrate with 50+ ERP platforms (they play in many industries) and work with many Rockwell distributors. They exhibited at the conference as they have now developed an integration with Dodge to help Tour de Force’s customers benefit from the Dodge data … delivering the right information to advise salespeople on projects and correlate information to contractors.  Tour de Force offers CRM, marketing automation and BI tools.  If you are considering a CRM system and see the value in Dodge data as a lead generation tool (and can manage your sales organization appropriately to use the information), they may be worth looking into.

A very productive day in DC (okay, can’t say that often!).  Hope the directional information helps.

Thoughts? What are you seeing, or projecting, for your market?  Agree or disagree with Dodge?