Imagination and energy
Every two years when I ask contractors and manufacturers whether their business will be up or down in the year ahead, I frequently hear that their fortunes will depend on the upcoming election results. To be honest, I get a little tired hearing the same answer during every election cycle.
This year is no different, and by the time you read this we will all know whether we’ll experience four more years of the current administration or the first term of a new president. According to at least one economist who follows the construction industry closely, whoever wins won’t make a major impact on your business.
“The future is a function of what we want to be; it does not depend on government,” Brian Beaulieu told plumbing, HVAC and electrical service contractors at the Nexstar Super Meeting last month in Las Vegas. “Stop worrying about the election and be optimistic about the future.”
Now there’s a refreshing thought.
Construction contractors are entrepreneurs who live in a micro-economic world, he said. They - not the government - get to determine their own economic future by using their imagination and energy.
“Use your imagination to dream of changes and doing new things. Does that still excite you?” Beaulieu asked. “Do you still have the physical energy to make it happen - to work that hard and that smart? If you still have the imagination and energy, stop looking at 2008 and 2009 and worrying if it will happen again and look forward.
“It’s not up to the government; it’s not their job. It’s your job.”
Fortunately, you can afford to be optimistic with signs of an improving economy and construction industry. Beaulieu pointed to the fact that U.S. dependence on foreign oil has declined while American workers are seeing gains in productivity and employment.
“The unemployment rate of 7.8% is a real number and not spin,” he said. “But focus on employment - it’s up. It would be growing faster if we could find the right people to hire and people were coming to us with the right skill sets. The job opening rate is soaring.”
In the construction industry, both housing starts and existing home sales have increased since last year. Beaulieu expects those trends to continue through next year, although the residential market may experience softness in 2014.
The nonresidential construction market, on the other hand, will be strong in 2014 as it will next year. A recent forecast from the American Institute of Architects supports his optimism.
In August, AIA doubled its projections on how much spending on nonresidential construction projects would increase this year. It now says spending will rise 4.4% up from its projection of a 2.1% increase in its January Consensus Forecast.
A sharp spike in demand for industrial facilities this year, along with sustained demand for hotels and retail properties prompted AIA to change its forecast. In its semiannual Consensus Construction Forecast (www.aia.org/practicing/AIAB095480), AIA further projects a 6.2% increase in nonresidential spending in 2013.
“With companies looking to bring back manufacturing jobs from overseas, there has been a sharp rise in demand for industrial facilities, which is leading to an upward revision in projections for future construction spending,” AIA Chief Economist Kermit Baker says. “Continued budget shortfalls at the state and local level, along with a depressed municipal bond market, are holding the institutional market back from seeing similar upticks in spending.”
Spending in the industrial sector will rise 12.9% this year and another 8.1% in 2013, according to AIA. Other substantial increases will come in: lodging (9.5% in 2012, 18.2% in 2013); retail (6.2%, 9%); office buildings (4.7%, 8.7%); health care (4%, 7.5%); and even religious buildings will rebound from negative territory this year to positive growth in 2013 (-5%, 3%).
AIA’s optimistic forecast contains a cautionary note as well.
“Federal tax and spending changes - the so-called fiscal cliff - that may come into play in early 2013 could upset the economic applecart and prove detrimental to recovery possibilities,” Baker says. “We will likely have a better sense after the presidential election what will happen with regards to the Bush-era tax cuts, Social Security payroll tax, extended unemployment and deficit reduction plans that will have a ripple effect and will extend to the construction industry.”
Beaulieu sounded less concerned about the fiscal cliff as he is about the election results. People worried about the country going over the fiscal cliff are paying more attention to political spin than they are to economic reality, he said.
“The economy will continue to move higher,” he said. “You and I should remain aggressive in our plans and our spending.”