Because there is a lack of good data sources on future construction activity, forecasting construction spending is an “ear to the ground” and “word on the street” process.
Fortunately, over the years we have found that by listening carefully to the opinions of contractors we can predict with a reasonable degree of certainty at least the general direction of various construction market segments over the next year or so.
Contractors in the nonresidential market segments of the industry stay in close and continuous contact with their principal clients and tend to have a good understanding of future capital investment plans.
We have recently consulted with some of the key construction industry firms in the area to discuss what the next couple of years look like for construction. Based on what we are hearing from contractors we expect most market segments to improve at least slightly in the near term. There are a couple of notable exceptions that will likely drag the industry down overall for the coming year.
Here are some of the observations that can be made from what we are hearing from area contractors:
In the industrial segment of the market we expect construction activity will be up in the near term among the smaller industrial companies in the area. It’s been three or four years since we have seen much activity in this area of the business and we feel investment among the smaller manufacturers and processors indicates improved confidence in the future of the economy. However, we have to be careful with this assessment as confidence among business owners can diminish quickly because of changes in national public policy and events in other economies such as Europe and China.
Unfortunately, capital and maintenance spending among some of the larger manufacturers is likely to be down, which likely will result in overall spending in the industrial market being down.
The big player in the industrial segment, of course is BP. As the largest construction project in state history, the BP project saw peak employment levels of almost 14,000 contractors and tradesmen in 2012. While those numbers have fallen off in recent months, and will continue to do so this year, the project will continue to employ many thousands of workers this year and into 2014.
In a very significant way the BP project allowed Northwest Indiana to dodge the economic bullet of the last few years by pumping hundreds of millions of dollars a year into the local economy through wages paid to employees and purchases of local goods and services.
In the commercial market, we expect to see at least a slight improvement in private construction activity. Of particular note will be ongoing spending in the health care sector, which has been reasonably strong over the last few years.
In the public works segment, while we expect a fair amount of spending on infrastructure projects – roads, bridges, sewers and drainage control, the market segment we feel will not do well this year is construction of public buildings such as schools and municipal buildings.
This market has been soft to almost nonexistent for several years, perhaps because of the combination of the fiscal condition of local governments and the new referendum requirements for large projects. Fewer and fewer local governments have the ability to finance new construction projects, and many large school projects have been rejected by taxpayers during required referendums.
Dewey Pearman is executive director of the Construction Advancement Foundation. The opinions are the writer's.