From the Field
Crystal_ball_2018

Forward economic signs justify still-positive outlook

Just chill. This year's end may seem unusually fraught with uncertainty and anxiety. But there is still plenty of good news out there, and much cause for optimism.

As we make planning decisions and finalize budgets and resolutions for the coming calendar year, December inevitably becomes the most reflective month of the year. This year’s end, more than most, seems particularly fraught with uncertainty and foreboding. But there are several positive signs out there that we are hearing from across our industry, so let’s share.

Last month here in Chicago, the venerable Dodge Data & Analytics economic forecasting franchise released the 2018 Dodge Construction Outlook, its 79th annual report surveying indicators like permits and RFQs across dozens of markets, from office buildings and factories to roads, bridges, K-12 schools and more. Despite all the swirling funding questions still clouding its crystal ball, Dodge still predicts total U.S. construction starts for 2018 will climb 3% to a value of $765 billion in new contracts. This comes on the heels of an estimated 4% rise for 2017.

Maturing expansion

“The U.S. construction industry has moved into a mature stage of expansion,” said Robert Murray, Dodge VP and longtime chief economist. “After rising 11% to 13% per year from 2012 through 2015, total construction starts advanced a more subdued 5% in 2016. An important question entering 2017 was whether the construction industry had the potential for further expansion. Several project types, including multifamily housing and hotels, have pulled back from their 2016 levels, but the current year has seen continued growth by single-family housing, office buildings, and warehouses. In addition, the institutional segment of nonresidential building has been quite strong, led especially by transportation terminal projects in combination with gains for schools and healthcare facilities.”

Looking ahead, Murray added, “For 2018, there are several positive factors which suggest that the construction expansion has further room to proceed. The U.S. economy next year is anticipated to see moderate job growth. Long-term interest rates may see some upward movement but not substantially. While market fundamentals for commercial real estate won’t be quite as strong as this year, funding support for construction will continue to come from state and local bond measures.”

Dodge’s forecast remains relatively consistent with the 18-month Consensus Construction Forecast compiled last June by the American Institute of Architects (AIA). In addition to Dodge, six other economic forecasting sources are included in that report, including FMI, Moody’s and the Associated Builders and Contractors trade group. “Combined, the AIA Consensus Forecast projects annual growth in the 3.5% to 4% range for the remainder of 2017, as well as for 2018,” said AIA Chief Economist Kermit Baker at the time of the report’s release. “However, a somewhat more optimistic view is coming from architecture firms,” he added then. “Our average Architecture Billings Index (ABI) scores for the first half of 2017 exceeded average scores for both 2015 and 2016.”

AIA Consensus Construction Forecast, June 2016

For its part, the Associated General Contractors of America (AGC) also is bullish on 2018, though worried about labor shortages and, at press time, a potential missed opportunity with federal tax reform. On Nov. 29, AGC reported that construction employment had increased in 243 out of 358 metro areas between October 2016 and October 2017, according to its analysis of new federal employment data. “Growing demand, especially from the private sector, is continuing to drive construction employment gains in many parts of the country,” said AGC Chief Economist Ken Simonson. “The tax reform proposals now being debated in Washington can do even more to help ensure that metro areas will continue to add new construction jobs.”

Also worth noting...

In other intriguing and positive news, as we have reported online, HVAC giant Trane, a division of Ingersoll Rand, has acquired CALMAC Corp., a privately held Fair Lawn, NJ-based firm specializing in cool energy technologies, including IceBank storage tanks. “That is a very interesting development,” said Rick Fedrizzi, speaking to us last month in Boston at Greenbuild. Now CEO of the International WELL Building Institute, Fedrizzi is a co-founder of the U.S. Green Building Council and a former longtime exec with Carrier Corp. 

“With CALMAC, we are well-positioned to offer customers even greater choices for reducing energy and operating costs and capitalizing on the multi-billion energy services market opportunity,” said Donny Simmons, president of the commercial HVAC business of Ingersoll Rand.

Meanwhile in Europe, Danish air-handling giant Danfoss reports that for the first three quarters of this year, its net sales grew by 12% percent to reach $5.18 billion USD. China, in particular, is standing out as the fastest growing of its global markets. “We are leveraging the growth opportunities [to] make massive investments in digital opportunities and thereby smarter solutions and increased value for our customers,” said Danfoss CEO Kim Fausing.

Next month, we look at 'What's New and What's Next', engaging HVACR thought leaders in a further discussion of the year ahead. In the meantime, Happy Holidays and Happy New Year to one and all!

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This article first appeared in the December 2017 print edition of HPAC Engineering magazine. To see the rest of the issue digitally, click here.

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