by Shane Henson — July 17, 2013—FMI, a provider of management consulting and investment banking to the engineering and construction industry, released its Q2-2013 Construction Outlook last week. According to the report, improvement in residential construction is the primary area of growth in the second quarter of 2013. Most other sectors, while still improving over 2012, are growing at a somewhat slower rate.
The major markets adjusted downward with lower expected growth are:
- Commercial Construction (-0.8%): The current forecast calls for about a 1% drop in commercial construction from the Q1 forecast. However, this still represents a modest increase of 6%, to $49.8 billion for 2013. One of the contributing factors is that sales for retail and food service businesses is slower than initially anticipated.
- Healthcare (-3.15%): Contributing factors for the decrease include hospital beds per 1,000 people trending downward and shorter patient stays.
- Amusement and Recreation (-2.0%): Given the belt-tightening attitude across the country right now, it will likely be much more difficult to get funding from taxes and municipalities to build new stadiums in the near future.
- Sewage and Water Disposal (-3.8%): Construction for sewage and waste disposal was off 2% in 2012. FMI forecasts another 2% drop in 2013. The ability to fund necessary water infrastructure improvements is central to the decline as many municipal water systems still depend on the tax base for funding.
- Water Supply (-3.2%): Construction for water supply projects will drop 1% in 2013 after dropping 7% in 2012. On the bright side, in March the Senate Environmental and Public Works Committee unanimously approved a Water Resources Development Act, including a measure to create the Water Infrastructure Finance and Innovation Act (WIFIA). WIFIA would provide $50 million per year from 2014 to 2018 to help fund large-scale water infrastructure projects.
FMI says that while there is no singular reason for the drop in these markets, there are a few economic concerns that touch all of them. These include the decline in public construction; expectations of more cuts as the sequestration continues; tight lending criteria; and consumers cautious about increasing their debt load.
