Mid-year economic outlook for nonresidential construction: Expansion continues, but vulnerabilities pile up

More than 10 years after the end of the most severe financial crisis since the Great Depression, the U.S. economy is again making history by continuing its longest-ever expansion. Nevertheless, emerging weakness in business investment has been hinting at softening outlays, giving commercial and industrial construction contractors cause for concern, according to a mid-year economic outlook by Anirban Basu, chief economist of Associated Builders and Contractors.

“Given that every expansion in U.S. history has ended in recession, leaders of construction firms are rightly wondering when the record-setting expansion will end,” said Basu. “Looking at conditions on the ground, it likely won’t be in 2019, but 2020 could be problematic for the broader economy and 2021 for a significant number of contractors.”

Basu cites numerous vulnerabilities that could trigger a recession in 2020, including:

— Trade wars

— Softening corporate earnings

— Slowing job growth

— Elevated levels of household, corporate and government debt

— Election 2020

But there are plenty of reasons to remain optimistic. “For the most part, the economy has held up better than anticipated,” said Basu. “During the first quarter of 2019, gross domestic product expanded at a smart 3.1% annualized rate. The U.S. Bureau of Economic Analysis’ initial estimate suggests that the economy slowed to 2.1% growth during the second quarter, but that neatly beat economists’ expectation that that growth had fallen below 2%.”

“The economy could continue to prove resilient,” says Basu. “To date, the economy has navigated ongoing trade disputes and associated tariffs with aplomb. It has also withstood serial interest rate hikes, the longest federal government shutdown in history, extreme weather, shifting immigration policy, ongoing labor market shortages and a lengthy investigation regarding foreign influence in U.S. elections.”

To read the full economic outlook story, visit ConstructionExec.com.

Inflation may be starting to show some signs of cooling, but the Fed isn’t backing down anytime soon and the impact is becoming more noticeable in the architecture, engineering, and construction (A/E/C) space. The overall A/E/C outlook continues a downward trend and this is driven largely by the freefall happening in key private-sector markets.

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