Across numerous industries and sectors the stars certainly seem to be aligning to ensure that this year will be even better than last year in the Construction industry.
So what’s driving the Boom? We’ve compiled the 10 Reasons below that add up to a stellar year for the industry ahead.
10. Federal Tax Reform
Changes to the Federal tax code under the Tax Cuts and Jobs Act have Small Business Owners eager to make capital investments such as buying new equipment, building new offices and facilities, and kicking off expansion projects. The revised tax code allows them to capitalize on the up-front deductibility of those expenses. The National Foundation of Independent Business said in a recent article that Small Business Owner confidence hit an all-time high in December of 2017, with over 75% of small business owners planning on expanding their businesses in 2018. Now that small business owners can deduct the full value of any new capital expenditures they acquired in the new year, upgrading older equipment and launching new construction projects has never looked better.
9. Mother Nature’s Wrath
2017 proved to be the most costly year in US history when it came to Mother Nature’s property damage. According to a report by the NOAA, weather and natural disaster costs in the US and Territories exceeded $306 Billion last year, the highest in recorded history by nearly $80 billion. While of course terrible for victims and costly for those areas and people impacted, the silver lining is that a tremendous amount of rebuilding and repair is stretching into 2018. Thousands of construction projects are still underway or waiting to get kicked off. The billions of dollars committed by insurance companies as well as FEMA and other government programs are just reaching homeowner and business owner hands, and rebuilding, repair and restoration projects will be ongoing through this year.
8. Low Unemployment
Government statistics showed Q4 2017 to have the lowest Unemployment rates in two decades, with barely over 4% of job-seekers unable to find full-time employment. Consumer spending strength has also returned, with most retailers reporting the strongest Holiday season since before the 2008. More than 61% of US households reported having two or more full time wage earners, the highest number ever. All that buying power translates into businesses expanding to meet consumer demand as well as homeowners having the confidence to make home improvements and remodels.
7. Residential Real Estate Boost
Across the US, in major metro areas, real-estate prices reached all time highs in 2017. That has developers and homeowners all pushing a massive increase in real-estate building and construction. Homeowners want to take advantage of increased equity to finance remodel and additions, and developers are looking to exploit higher home prices with new construction projects this year while markets are heated. In a recent online Webinar, the National Association of Homebuilders demonstrated that over 70% of their members expect to hire more workers in 2018 to keep up with demand. And with interest rates still hovering at historic lows, there may be no time like the present to take out equity and refinance to cover an add on or remodel (see #4 below!).
6. Baby Boomer Cash-Out
Starting last year and ramping up this year, retirees are cashing in on long term tax-deferred retirement investments, particularly with stock markets at all-time highs. IRS tax regulations require certain types of investments to be distributed to the retiree before they reach age 71. As more and more retirees begin to approach that milestone and see equities at all-time highs, taking those distributions now makes more sense than ever. On the whole, retirees are gaining Billions of dollars, with one recent IRS report to Congress estimating that forced distribution of IRA investments would total $1.5 Trillion over the next 10 years. That’s $150 Billion per year leaving IRAs and hitting bank accounts. Aside from a travel and food, many retirees will look to remodel older homes or buy a retirement or vacation property. Many will also look to invest in rental properties to ensure steady income during and through their retirement. This should translate into billions of dollars yearly shifting from the equities markets and Wall Street over to Main Street industries like construction.
5. The Amazon Effect
More and more, businesses are following the Amazon-ification of everything, which means just-in time delivery and shipping. From Walmart to Costco to Gap, retailers across all categories are starting to offer free 2 day shipping and more of their product catalogs online. But competing with Amazon means that a single factory and warehouse in one part of the country no longer works. Amazon is famous for mastering the logistics of warehousing and shipping almost anywhere in the US in 2 days or less, and they did that by building dozens of warehousing and shipping facilities all across the country. Other retailers are following suit, building Warehouse and Commercial shipping near airports and population centers with sufficient demand. CNBC featured an article recently that indicates warehousing will be among the hottest sectors of Construction for the next several years.
4. Low Interest Rates
Even though the Federal Reserve has started to inch interest rates up, they are still low by historic standards. Additionally, with rates predicted to go up this year and next, businesses may seek financing for Construction projects this year, rather than wait and find themselves paying 1-2% more due to higher interest rates. Look for companies to push forward construction schedules to take advantage of rates before they move higher toward the end of this year and next.
3. Increased Contractor Confidence
A recent survey of the Independent Contractors of America group found that their members are all indicating an increase in requests for bids and busy schedules for 2018. Over 50% of members plan on making new Construction equipment purchases in 2018, and over 75% said 2018 should be busier than 2017. Numbers like that hint at more than just wishful thinking, and with all other indicators pointing to a boom year for new Construction, we’re inclined to agree.
2. Strong GDP
Jamie Dimon, CEO of Chase Bank, has gone on record foreseeing a 4% growth rate in Gross Domestic Product in 2018, the fastest pace since the late 90s and the dot-com boom. After several years of sub 2% annual GDP growth, 4% would be a welcome change for US companies. Since 1980, years with GDP growth above 3% were also years that saw spikes in New Home Construction, as well as Commercial and Manufacturing construction projects. If Mr. Dimon is correct, strong economic growth overall should provide the final catalyst the industry needs to see such growth in 2018. Maybe he was wrong about Bitcoin, but it seems he’ll be right about US GDP.
1. Infrastructure Spending
One area of Construction that lagged behind while the market grew has been Government projects. That should change in 2018, as the Trump Administration and a still Republican-controlled Congress have made Infrastructure spending a key piece of their legislative agenda in 2018. Look for the narrative to gain steam starting with the Spring congressional session. With 2018 being a mid-term election year, both parties will be looking to score points with voters by ensuring government funding comes to their state. Look for public works funding increases by the 2018 November mid-terms.
If you, too, anticipate the 2018 Construction Boom, you’re probably wondering how to capitalize on it.
In another article we’ll walk through what everyone from the average investor to the building contractor should be considering both in terms of investment and financing.
If you’re already a competitor in this very hot market, you’re probably thinking about buying equipment or finding the capital necessary for growth. Currency is one of the largest finance companies in the heavy equipment and construction industries, well positioned to help you compete. With Currency’s Express Finance, you can apply online and get approved in minutes. As a trusted partner of Rock & Dirt, you’re in good hands with Express.