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The construction industry heads into 2018 on a high note, but there is a lot of uncertainty as to whether contractors will still be singing a happy tune at the end of the year.

Construction spending put in place hit a new record high of $1.24 trillion in October, the Census Bureau reported on Dec. 1. That mark was 3 percent above the prerecession peak reached in February 2006.

However, if this number was being printed in a baseball record book, it would have a big asterisk beside it. That’s because the figure has not been adjusted for 10-plus years of inflation.

There is no single price measure for adjusting the wide range of construction activity, but a reasonable proxy is construction employment. Like the spending total, industry employment has been growing since the beginning of 2011, but it is still 10 percent below the previous record, which dates from April 2006.

Final figures for 2017 aren’t in yet. But, based on the year-over-year growth rates through October, it appears that employment increased around 3 percent over the 2016 level, while spending grew roughly 4 percent, without taking inflation into account. Both growth rates are slightly more robust than those for the overall economy.

Economic forecasters appear confident that the economy, measured by inflation-adjusted gross domestic product (real GDP) will again grow around 2.5 percent in 2018 and employment will increase about 1.5 percent. Growth will come from all four broad contributors—consumers, businesses, government purchases and investment and exports, although imports will grow about as fast as exports.

If these predictions are accurate—and it is said that economic forecasts exist to make weather and stock market forecasts look good—construction should also keep growing in 2018. But the growth of construction is likely to be much less balanced than that of the overall economy.


On the high-growth end will be residential improvements and warehouses. Normally, these segments are not particularly important for most recyclers. However, much of the increase in residential improvements in 2018 is likely to be associated with the renovation of damaged homes and apartment buildings in hurricane- and flood-ravaged areas, rather than additions as in a more typical year. While some of the demolition has already taken place since Hurricane Harvey, subsequent flooding struck in August and Hurricane Irma made landfall in September.

There remain many buildings in need of rehabilitation that still await permits, designs and funding. There will also be some reconstruction and associated debris removal in the wildfire-ravaged areas of California. Despite the need for replacement housing in these areas, spending on new single-family construction is likely to grow at a similar rate as in 2017—7 to 9 percent.

Where warehouse construction historically meant greenfield buildings on vacant rural or outer-suburban land, more companies are now looking for city locations to serve customers who “click and collect”—ordering online with the expectation they can pick up or receive an item the same day. These facilities are often in much older buildings that require substantial modification and, therefore, removal of existing components.


Two construction categories that will likely slow in 2018 may still provide opportunities for recycling: offices and shopping malls. Office construction, formerly dominated by low-rise, new suburban buildings, now entails a lot of renovating older city properties. These include 30- to 50-year-old buildings that receive new exteriors, updated mechanical and electrical systems and open floor plans, as well as much older warehouses and factories that become hip new headquarters.

Mall owners are being forced to replace both anchor and smaller tenants. To attract new foot traffic, they can no longer just replace signage and make minor tenant improvements to replace one retailer with another. Instead, they are tearing off roofs, overhauling dining and movie theater spaces and adding nontraditional tenants, such as churches, that may have very different space needs.

Public sector construction has been a weak spot for several years and is likely to be flat or down again in 2018. However, there are two segments that appear promising: schools and airport terminals. Both categories are less vulnerable than most public construction to the spending squeeze that the current Congress and legislatures are likely to impose.

School districts rely heavily on real property tax receipts, which rise (with a lag) once house and commercial property values increase, as they have for the past several years. As a result, elementary and secondary school construction has begun rising briskly and will do so again in 2018 thanks to a proliferation of school bond issues that voters have approved in recent elections.

Because more millennials are staying in cities and older suburbs for longer periods of time, school construction spending often entails rebuilding or adding onto older schools rather than building new to accompany a new subdivision.

Airport funding comes largely from airline landing fees and gate rentals, ticket fees known as passenger facility charges and local taxes. It also comes from rental income from retail, parking, rental car and hotel tenants. As the number of flights and passengers has mushroomed, so have these revenue sources.

Nearly every major airport in the nation, as well as many midsized airports, is undertaking an overhaul. Spending ranges from consolidated rental car facilities to new gates and control towers. Each of these may require demolition to make way for replacements. But the biggest expenditure is in terminals, which generate a lot of interior restructuring.


Not every type of construction will do well in 2018, however. Multifamily spending, which outpaced single-family homebuilding for the first several years after the recession, grew more slowly than single family in 2017. This type of spending is poised to shrink slightly in 2018 based on the declining number of new multifamily starts and permits.

Lodging construction is likely to flatten out in 2018 after years of double-digit increases. The industry faces increased competition in some markets from room and home rental services, such as HomeAway, Airbnb and FlipKey, and a decline in foreign visitors in some gateway and resort markets.

Declining numbers of foreign visitors—in this case, students—are also one reason that higher education construction could be headed for a downturn. The total number of postsecondary students has dropped sharply in the past seven years, due both to the increasing ease of finding a job without obtaining an additional degree and because the number of high school seniors has been slipping.

Hospitals, which once did a large amount of debris-generating renovation, have been a stagnant part of the construction market.

In 2018, the trend toward locating medical services outside of hospitals is likely to continue. Such locations include standalone urgent care, outpatient surgery and rehabilitation facilities and hospices. Despite these changes in construction demand, one aspect of the industry is likely to remain constant: the difficulty of finding qualified workers.

That challenge may not be apparent to outsiders when they hear that the industry was able to increase employment at a faster rate than other employers throughout the economy for the past several years. But another government data series shows that end-of-month construction industry job openings hit record levels for several months in 2017.

Additionally, a survey released in late August by the Associated General Contractors of America (AGC), Arlington, Virginia, found that 70 percent of the respondents said they were having trouble filling hourly craft positions, while 48 percent said they had difficulty finding project managers and supervisors. Even higher percentages thought hourly craft and salaried positions would be as hard or harder to fill in the year ahead.

Recycling firms can expect a varied year for business opportunities because of these reasons, depending on which construction segments they rely on. They can also expect a continuing challenge finding workers.

Ken Simonson is the chief economist for the Associated General Contractors of America, Arlington, Virginia.