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5/1/2019 | 2 MINUTE READ

Residential and Commercial Construction Outlooks Diverge

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The changing trend in construction has resulted in a significantly lower forecast for the industry in late 2019.

After reaching new highs during the fourth quarter of 2018, the monthly trend in total put-in-place construction (a measure of the value of construction installed or erected at the site during a given period) has been steadily falling. The January 2019 reading marked the first time since 2011 that total construction had fallen compared with the same month a year ago. This changing trend in construction has resulted in a significantly lower forecast for the construction industry in late 2019 as compared with the outlook from just six months ago.

Wall Street equities analysts anticipate slowing revenue growth in the construction industry through the end of 2019, according to the latest consensus outlook. Further, the consensus outlook anticipates no growth during the fourth quarter of the year. This is a significant change from the forecast of just two and three quarters ago. At the time, Gardner Intelligence reported that equities analysts expected double-digit revenue growth during the first three quarters of 2019, followed by a 6% gain in the fourth.

Separating the construction industry into its non-residential (commercial and industrial) and residential segments reveals only modestly different outlooks. Despite the fact that residential construction revenues have grown at over twice the rate of non-residential construction since 2015, both sectors are expected to struggle during the fourth quarter of 2019. Although analysts expect both sustained low unemployment and low mortgage rates, residential construction revenue is projected to grow at 1.3%, while the commercial and industrial construction sector is expected to fall by 1%. Beyond 2019, both segments are expected to experience revenue growth approaching 4% by the end of 2020.

While both segments are expected to see similar revenue trends, their respective forecasted-earnings pictures are quite different. Earnings growth in the commercial and industrial sectors is projected to fall by almost half over the remainder of 2019, with additional slowing growth in earnings in early 2020. In contrast, earnings growth in the residential segment is expected to steadily decline before turning negative during the second half of 2020.

ABOUT THE AUTHOR: Michael Guckes is the chief economist for Gardner Intelligence, a division of Gardner Business Media, Cincinnati. He has performed economic analysis, modeling, and forecasting work for nearly 20 years among a wide range of industries. He received his BA in political science and economics from Kenyon College and his MBA from Ohio State University. Contact: (513) 527-8800; mguckes@gardnerweb.com. Learn more about the plastics processing Index at gardnerintelligence.com.