Precast Forecast 2019: Public Works Could Fuel Positive Year in Precast

NPCA’s annual Precast Forecast predicts a 3% increase in total sales next year, raising the industry’s bottom line to $21.2 billion.

NPCA Staff Report

While some economists foresee a slowdown in the overall economy and a flat construction industry in 2019, the precast concrete sector could fare slightly better. There is no single factor that points to a solid year ahead for precasters, but many variables should fall in line to keep the slow-but-steady growth pattern in place for at least one more year. The National Precast Concrete Association’s annual Precast Forecast predicts a 3% increase in total sales next year, raising the industry’s bottom line to $21.2 billion in annual sales of precast concrete, prestressed concrete and reinforced concrete pipe products in North America.

If that forecast holds true, the precast sector should fare slightly better than the overall construction industry, which appears headed for flat or low single-digit growth in 2019, according to several of the leading construction economists, who see a period of slow growth ahead.

If this is the end of the 10-year expansion that started with the recovery from the Great Recession, it is likely to be markedly different from the last downturn, in which precasters and most other construction companies experienced rapid declines of up to 40% of their revenue. The next recession should be more of a soft landing, most economists believe.

The fundamentals continue to be sound, according to Robert A. Murray, chief economist for Dodge Data and Analytics. Speaking at the 2019 Dodge Construction Outlook Conference last fall, Murray said his data points to a deceleration of the double-digit growth experienced the last several years as the current cycle winds down.

“We seem to be rounding the peak,” he said.

That doesn’t mean the construction industry will necessarily be declining in the coming years, Murray noted. “It’s a deceleration – a slower rate of growth, but not a decline.”

Murray’s forecast actually shows a 0% rate of growth for 2019, but that is not a pessimistic outlook, he stressed. After a 10-year period of orderly growth, we are “maintaining the enhanced level that we achieved in 2018,” he said.

Ken Simonson, chief economist for Associated General Contractors of America, said contractors are bullish on 2019, based on a recent survey completed by more than 1,300 AGC members. The survey asks contractors to forecast whether they believe the dollar volume of available projects in the coming year will be higher, lower or about the same. When more contractors respond higher than lower, the net is positive.

“There were 14 or 15 construction categories, and in every one of these categories the net came out positive, so that’s still a very strong reading,” Simonson said.

More specific to the precast sector, one of the highest levels of confidence came in the water and sewer category, where positive responses outpointed negatives by 14 points.

“I would describe my outlook as modest to moderate improvement – low to mid-single digit increases in spending put in place,” Simonson said, adding that, “some of that will be eaten up by higher costs for materials and labor.”

Given all those concerns, Simonson still isn’t ready to forecast a recession.

“I’m agnostic on the prospects of a coming downturn right now,” he said, stating global economic factors and other unforeseen influences could provide a slowdown. “But I’m not ready to predict a recession for the overall economy or even a negative quarter for the overall economy or construction.”

Contractors aren’t the only ones who are confident in the future right now. The National Association of Manufacturers reported in its fourth quarter manufacturers’ outlook survey in December that confidence among its members was at a record high in 2018. The quarterly survey asks respondents to rate the outlook for their company. In 2018, 92.4% of respondents had a positive outlook. That confidence carried over to their feelings about 2019, with manufacturers expecting to increase production by an average of 4.3%. In the subcategory of small manufacturers (50 or fewer employees), survey respondents were slightly less optimistic, anticipating increased production of 3.9% in 2019.

If there is a drag on the construction economy in 2019, it will likely come in the residential construction sector. After the housing market – and nearly the entire economy – crashed in 2008, single-family and multi-family housing recovered in fits and starts. Since 2015, there has been a steady upturn of 5% to 10% growth each year, with solid expansion in the multi-family sector led by a trend toward condo and multi-use construction in downtown areas of large and mid-sized cities, as more young professionals opt to move to the city core rather than buy homes in the suburbs. That multi-family building boom has likely played out. The Dodge forecast sees an 8% decline in multi-family housing starts (6% in dollar volume) and a 3% decline in single family home starts (0% in dollar volume), leading to an overall decline of about 5% in housing starts and 2% in the contract value of those homes.

The outlook appears better in those sectors that would be of interest to most precasters. Categorized as nonbuilding construction, this sector would include highways and bridges, sewer systems, stormwater conveyance and storage, utilities and other environmental and public works.

The Dodge outlook predicts growth in this sector, with total public works rising 4% in 2019. That includes the environmental public works segment, which received a boost when Congress passed the America’s Water Infrastructure Act last October. That legislation includes an update to the Water Resources Development Act and more money for state revolving fund loans. When added to strong activity at the local level for large wastewater and stormwater projects, the demand for precast structures in the water market should remain strong. Of course, precast concrete is primarily a regional product, so making predictions about total construction starts doesn’t mean the same thing in Peoria, Ill., say, as it does in New York City.

Regionally, the South Central states – anchored by Texas – are set for the highest growth rate at 6%, according to the Dodge Construction Outlook. The Western region should grow by about 3%, with the Northeast and Midwest dropping back about 2% and the South Atlantic declining 4%. As might be expected, much of the growth is expected in the usual construction hotbeds of New York City and the Washington, D.C. region, Sun Belt regions and booming cities like Austin, Texas, and Portland, Ore. But there are also major projects on deck in cities like Charlotte, N.C., and Spokane, Wash., after the passage of local construction bonds.

Ty Gable, NPCA president, reached back into political history when looking at the forecast for precast, citing Tip O’Neill, the Congressional leader and former Speaker of the House in the 1980s.

“Tip O’Neill famously said all politics is local,” Gable said. “Precast is that way too. While federal funding provides a baseline for everybody, the local economic environment can make the difference between a flat year and a great year for a precast concrete manufacturer.”

Gable agrees that the 10-year run of growth is probably not sustainable, given the normal construction cycle.

“We’ve recovered most of that 40% crash in business felt by most precasters during the Great Recession, but a day of reckoning is coming,” he said. “Probably not in 2019, but more likely in the last half of 2020 or in 2021. It’s just part of the normal cycle.

“It doesn’t appear to be anything drastic, but more of a decline in the high single digits over a couple years, followed by a return to orderly growth.”

That could all change, Gable added, but for now, most precasters should be confident that there will be plenty of opportunities ahead.

“One issue we’ll be working on in 2019 with our trade association partners is the passage of a meaningful infrastructure bill – this year,” Gable said. “A significant infrastructure package is seriously needed in this country to keep us competitive around the world, and it would create significant opportunities for the precast concrete industry. But it needs to happen in 2019,” he added, “because a major piece of legislation like that would have a difficult path in an election year.”