By Bridget McCrea
If the most recent Baird Electrical Distribution Survey is any indication, electrical distributors are pretty bullish on the state of the national construction market right now. (To learn more about the research findings, read this article from last week.) After shaking off the negative impacts of the extended national recession, U.S. residential, commercial, and industrial markets have been starting new projects, taking old plans out of mothballs, and hiring new employees to help bring those projects to fruition.
The electrical distributors that serve these markets have also felt the positive impacts of the rebound. According to the survey, which is conducted every quarter in partnership with tED magazine, construction continues to be a strong vertical—with revenues up nicely and a growing backlog. “Commercial construction markets show continued strength,” one respondent wrote. “The commercial construction market is still very strong and backlog will continue to build for at least the next four quarters,” wrote another survey participant.
As a whole, survey respondents indicated that average year-over-year revenue growth in the second quarter was +0.3 percent in electrical and +3.6 percent in datacomm. Both of these sectors compared favorably to the -0.2 percent growth seen across the broader distribution industry. Within electrical, specifically, the second quarter of the year brought little in the way of change, as the solid construction/weak industrial dichotomy seen over the past 18 months remains in place, again resulting in “flattish” growth overall.
The presidential election is right around the corner. Rather than plowing ahead with new strategies and plans for growth, some U.S. companies are taking a “holding pattern” approach until they see how the election results impact the national and/or regional economies. (See our Pre-Election Stagnation article.) For many electrical distributors, just how the national construction markets react to the changing of the guard is a true concern.
To get the scoop on this issue and find out how construction markets typically act in a post-election environment, tED magazine spoke with Ken Simonson, chief economist for the Associated General Contractors of America (AGC) in Washington, D.C. Here’s what he had to say:
tED magazine: With the election a couple of months out, what trends are you tracking in the construction market?
Ken Simonson: Construction data is sending conflicting messages right now. Contractors generally say they’re plenty busy, and that their major concern is finding enough workers (not finding projects to bid on). Yet both construction employment and construction spending data from the federal government have been showing a pause (or a decline) since March. The question is, is the industry about to have a major slowdown or even a downturn, or is the data just not keeping up with the reality?
tED magazine: What do you think is causing this uncertainty?
Simonson: There are some shifts taking place within the construction market in terms of where the demand is coming from. On the single-family side, the market is moving ahead but kind of in fits and starts. On private/non-residential construction, we had a slump in power and energy categories that we seem to be working [out of] now. There are some new gas-fired power plants that are under construction, a lot of wind and solar projects, and at least the prospect of some gas pipelines. The latter have run into regulatory or court hurdles, but it does look as if that niche will be picking up.
tED magazine: What are AGC’s members saying about other construction sectors right now?
Simonson: Office construction has been very strong, but it’s somewhat narrow in that it’s generally taking place in larger cities or few suburban areas, such as Silicon Valley and some of the Dallas suburbs. Retail has been weak and looks as if it will stay that way, with all of the big chains that have announced closures and some of the specialty chains that have gone bankrupt and/or closed hundreds of stores. The warehouse market is growing—as more people buy online. Finally, the public side of the market remains pretty weak and uneven.
tED magazine: How is the lead up to the presidential election impacting decisions and momentum in the construction markets?
Simonson: I think it may be one of the reasons that businesses have held back on committing to building more in the way of plants and offices, but it’s probably had less affect on construction than on some other industries. In terms of what the candidates have talked about doing, it depends on how willing you are to believe what they say. It’s been frustrating, frankly, to see how few specifics we’ve seen from the candidates about what they would do and—most importantly—how they would pay for it. Some rather grand figures have been thrown out there about infrastructure investments. If that actually happened, of course it would be a huge shot in the arm for a lot of construction firms and their electrical suppliers, but I think there’s a lot of skepticism that those numbers will actually fall into place, and rightly so. To pay for these projects, Congress is going to have to agree to tax increases, and I don’t see any sign of that happening.
tED magazine: Based on past experience, how do construction markets typically react when a new president is voted into office?
Simonson: More than anything else, it really depends on the state of the economy. Rewinding back to 2009, the country was grappling with a deep recession and huge shocks to the financial markets—both of which had devastated residential construction markets for several years. Congress passed the American Reinvestment and Recovery Act (ARRA), which did deliver some money to the different construction categories (i.e., some highway contractors would have shut down had it not been for the extra funding). By and large, however, construction received a very modest benefit from the ARRA. Looking toward 2017, I think that no matter how the composition of the House and Senate turns out, it’s going to be very difficult to get legislation passed promptly, particularly based on the lack of discussion about issues impacting construction. That said, I think it’s unlikely that we’ll see any impact on construction from legislation in the first year of the new president’s term.
tED magazine: What else should electrical distributors know about key construction trends over the next 6-12 months?
Simonson: Over the next year I think we’ll see continued growth, but that growth will be quite uneven by segment and by region. I would say that overall economic conditions will contribute to this unevenness. For example, investment in manufacturing plants and other types of business-driven construction has been held back by weak U.S. economic growth and even weaker conditions abroad. Conversely, the powerhouse for the U.S. economy has been the consumer—specifically, those consumers who are buying goods online. They’re spending more on dining out and on travel. That has benefited restaurant and hotel construction. For now, I think the number one concern for contractors is finding skilled, experienced workers. That includes electricians. That issue isn’t going to go away after Election Day unless somehow the demand for construction suddenly slumps; it’s really going to be an issue for our industry for the long-term.
McCrea is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at firstname.lastname@example.org or visit her website at www.expertghostwriter.net.
Tagged with business, construction, economy, election, research, strategy, tED