USA new construction starts in January increased by 8% to 9% from a year earlier. The Trump administration managed to pass a new tax law will have a positive impact on the USA construction sector. The corporate tax rate was changed from 35% to 21%, a 60% reduction. The Trump administration has proposed an American Energy & Infrastructure plan that sets out possible public-private investment to stimulate a $1+ trillion budget for future infrastructure expenditures (roads, railways, bridges and airports) over the next decade. The jury is still out on when this legislation will be enacted.
The USA is the front runner of the 35 OECD major industrialized countries with 3.2% projected growth going into 2018. The USA EPC / Construction market is projected to grow in the 3% to 4%range for the next 5 years. Overall USA construction costs are projected to increase by 2.9% to 3.5% in 2018, over 2017 pricing levels. Bagged and bulk cement is forecast to rise by 3.2% to 3.8% in 2018. Structural Steel / Rebar is projected to increase by 2.7 to 3.4% in 2018. Timber framing / Plywood are anticipated to increase by 6.6% to 8.8% in 2018 over 2017 values. Copper products is forecast to rise by 1.9% to 4.2% in 2018 and PVC pipe is estimated to increase by 2.2% to 3.4%. Construction labor costs are forecast to increase by 2.6% to 3.4% in 2018 over 2017 levels. Drywall related costs in 2018 are projected to rise by 4.9% to 5.8% over 2017 pricing levels, due in the main part to the significant improvement in the USA “new” housing market.
The USA construction industry will keep on its growth cycle in 2018, 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, look for inflation to rear its ugly head again in the 4th Q of 2018.
We are starting to see USA 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 2018 over 2017 rates.
In August and September Hurricanes Harvey, Irma and Maria caused over $50 to $100 billion of property / infrastructure damage to Texas, Louisiana, Florida and Puerto Rico. Puerto Rico will need at least $15 billion to rebuild the islands’ electrical power and distribution system. Lack of skilled workers (welders, pipefitters and Instrumentation /Electrical workers) remains a problem the Gulf Coast region of the USA. Construction hourly wage rates across the USA are forecast to increase by 2.9% to 3.4% in 2018.
New U.S. single-family homes are forecast to have a good 2018, increasing by 6% to 10% over 2017 activity. The forecast for new home sales is in the 800,000 to 900,000 units for 2018, up significantly from a couple of years back. The US commercial construction sector (Offices, Hotels, Single Family Homes etc.,) will experience a steady improvement in the 1st half of 2018, 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 the 1st half of 2018 over 2017. Commercial construction such as offices, hotels, shopping malls and similar facilities are forecast to grow by 3.5% to 5.5% in 2018 over 2017 levels. Infrastructure such as transportation, water supply and waste water construction is forecast to grow by 3.8% to 5.8% in 2018 over 2017 levels.
The USA overall unemployment rate in the 1st half of 2018 is forecast to be in the in the 3.8% to 4.1% range. Construction unemployment is down in just about all areas of the USA. Overall unemployment in the USA construction sector is currently in the 5.2% to 5.7% range, a huge improvement from a couple of years back. USA Natural Gas / Shale Oil / Ethane / LNG exports to Europe and Asia are projected to grow appreciably over the next decade or two as USA shale oil and gas production increases. The USA trade dispute with Canada, over Canadian timber imports into the USA is still not resolved.
Canada’s construction sector will see modest growth in the 1st half of 2018. The Canadian Dollar has weakened to 1.30 to the USA Dollar, the weakening of Oil / Gas and commodities markets around the world has seriously impacted the Canadian Oil / Gas construction sector. Oil related construction in Alberta has slowed down appreciably in the last 12 – 24 months, however a couple of projects have been approved in the last month or two with Oil starting to trend upwards to the $60 to $65 a barrel range. Canadian construction costs (labor and materials) are forecast to stay relatively flat rising no more than 2.9% to 3.2%.in the 1st half of 2018.
Canada’s residential and commercial construction market is forecast start slowing down somewhat with mortgage rates starting to move upwards. The population of Canada is growing; this growth will have a positive impact on New Home / Apartments, Health Care, Hotels, Retail and Office construction. Overall, Canadian construction with the exception of Oil / Gas construction is primed to have a decent 1st half in 2018. The latest 2018 GDP growth forecast is 2.1%, similar to a year ago. The oil patch in Alberta, Canada has experienced a massive decline; Oil prices need to be in the $65 to $75 a barrel to make the Oil from this region of Canada cost-effective, however this could happen in 2018 with Oil prices trending upwards.
Mexico is now a larger economy than Brazil, however the possible changes to the current NAFTA agreement could seriously impact both Canada and Mexico, the current thinking is that the Mexican construction sector could slow down quite rapidly in the next six to nine months as private investors and government agencies make sense of what a new NAFTA agreement means to the Mexican economy. The Mexican Peso is currently trading at 18.52 Pesos to the US Dollar (3/21/2018), 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 3.5% or 4.5% by the 1st Q of 2018.