FMI’s Construction OutlookSecond Quarter Report
2016
Table of ContentsSecond Quarter 2016 Construction Outlook
Construction Forecast ..............................................................................................1
Residential Construction ...........................................................................................3
FMI Nonresidential Construction Forecast ....................................................................6
Lodging ..........................................................................................................6
Office .............................................................................................................7
Commercial .....................................................................................................8
Health Care .....................................................................................................9
Education ........................................................................................................10
Religious .........................................................................................................11
Public Safety ....................................................................................................12
Amusement and Recreation .................................................................................13
Transportation ..................................................................................................14
Communication .................................................................................................15
Manufacturing ..................................................................................................16
Nonbuilding Structures ............................................................................................17
Power .............................................................................................................17
Highway and Street ..........................................................................................18
Sewage and Waste Disposal ..............................................................................19
Water Supply ...................................................................................................20
Conservation and Development ...........................................................................21
Construction Put in Place Estimated for the U.S. ............................................................22
Appendix ..............................................................................................................23
12nd Quarter 2016 Report
After a slow start to the year, the U.S. economy is picking
up speed in the second quarter, with consumer spending
continuing to rise and a buoyant housing market. According
to the Federal Reserve, economic activity is expected to
expand at a moderate pace in the coming months, while
inflation will remain low in the near term.
FMI’s forecast for the second quarter continues the trend
from our first quarter report – and since 2011 – with another
quarter of growth for construction put in place (CPIP).
Overall growth for construction put in place is projected
to be 6%, with several markets growing at a higher pace,
including:
Together, these three markets represent 33% of nonresiden-
tial buildings for 2016. With the exception of commercial
construction, all are strong markets but growing slower than
in 2015.
SECOND QUARTER 2016 CONSTRUCTION OUTLOOK
Growth expectations in these markets were supported
by FMI’s Second Quarter Nonresidential Construction
Index report (NRCI), a survey of hundreds of construction
executives.
Conditions as we head into the summer of 2016 look
positive for the construction industry:
� Interest rates remain relatively low for borrowers
building homes and commercial projects.
� Unemployment remains low, so more people have
jobs and are spending money—on the other hand,
low unemployment translates into higher wages and
difficulties finding workers.
� The consumer price index (CPI) shows little sign of
inflation. Oil and energy prices also remain low. The
numbers, shown in more detail below, lead us to
expect continued growth that could be sustained for
several years.
55.6 to 61.3
TOTAL NRCI INDEX SCOREROSE FROM
LastQuarter
ThisQuarter
FMI’s Construction Outlook 2
FMI CONSTRUCTION PUT IN PLACEESTIMATED FOR THE UNITED STATES
However, there are tensions behind the numbers. Oil and gas producers mostly need higher prices to keep people employed
and make a profit. This is especially true for those countries that derive most of their income from oil and gas production. The
Federal Reserve has been looking for an opportunity to raise interest rates to encourage banks to lend and savers to save, but wages
have not shown much sign of rising rapidly for the working class, even if unemployment remains below 5%. Even though current
conditions are mostly good, we can see the tension in the economy.
Source: FMI Research Services
32nd Quarter 2016 Report
RESIDENTIAL CONSTRUCTION PUT IN PLACE Forecast as of Q2 2016
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
20
16
20
17
20
18
20
19
20
20
$-
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
Mill
ions
of C
urre
nt D
olla
rs
Multifamily Single-Family
RESIDENTIAL CONSTRUCTIONAfter four years of double-digit growth, we expect single-family housing to add 8% in 2016, reach-
ing $237.5 billion.
This growth is still far short of the pre-recession boom years, and that may be a good sign as pur-
chasers avoid getting in over their heads in debt and take a more conservative approach to making
the decision to buy a new home. That indecision is showing up in the growth of multifamily housing
and home improvements.
After four years of a hot market for multifamily homes, we expect the growth rate to cool in 2016 to
just 7%. Still, that translates to $61.7 billion in new construction put in place. Many of those who
might have once considered moving to a new home are now improving the home they live in by
adding rooms or just modernizing and repairing to the tune of $153 billion for 2016.
One reason that residential construction may not be growing faster is the lack of skilled labor in
some regions of the country. Higher prices may also slow the decision to buy a home, as the market
is currently a seller’s market with the housing inventory remaining quite low.
According to David M. Blitzer, managing director and chairman of the Index Committee at S&P
Dow Jones Indices, “The number of homes currently on the market is less than two percent of
the number of households in the U.S., the lowest percentage seen since the mid-1980s.” (May 31,
2016.) The current inventory of houses for sale in the U.S. is just 4.7% compared to 12.2% at the
height of the recession. (See Appendix for Monthly Supply of Houses in the U.S.)
SINGLE-FAMILY HOUSING
8%$237.5 Billion
MULTIFAMILY HOUSING
7%$61.7 Billion
Source: FMI Research Services
FMI’s Construction Outlook 4
RESIDENTIAL CONSTRUCTION IMPROVEMENTS PUT IN PLACE Forecast as of Q2 2016
Source: FMI Research Services
52nd Quarter 2016 Report
NEW PRIVATELY OWNED HOUSING UNITS STARTEDSeasonally Adjusted Annual Rate
Source: Federal Reserve Economic Data
TRENDS: � According to the U.S. Census Bureau, “National vacancy rates in the first quarter 2016 were 7.0% for rental
housing and 1.7% for homeowner housing . . . The homeowner vacancy rate of 1.7% was 0.2 percentage
points (+/-0.1) lower than the rate in the first quarter 2015 and 0.2 percentage points (+/-0.1) lower than the
rate in the fourth quarter 2015.” (April 28, 2016)
� “The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, reported
a 5.2% annual gain in March, down from 5.3% the previous month. The 10-City Composite and the 20-
City Composites’ year-over-year gains remained unchanged at 4.7% and 5.4%, respectively, from the prior
month.” (S&P Down Jones Indices, May 31, 2016)
� According to the U.S. Census Bureau, “Privately-owned housing starts in May were at a seasonally adjusted
annual rate of 1,164,000. This is 0.3% (±14.0%) below the revised April estimate of 1,167,000, but is 9.5%
(±16.0%) above the May 2015 rate of 1,063,000. (June 17, 2016)
DRIVERS: Unemployment rate
Core CPI
Income
Mortgage rates
Home prices
Housing starts
Housing permits
FMI’s Construction Outlook 6
FMI NONRESIDENTIAL CONSTRUCTION FORECAST
LodgingAlthough we expect only 14% growth in 2016 compared with 31% in 2015, the pace of growth for
lodging continues to be the highest among the construction categories we cover in this report. With an
expected value of $24.1 billion for 2016, this market is well below its high of $35.8 billion in 2008;
but we expect these numbers to be more sustainable with a mix of new venues and refurbishing estab-
lished locations. It is not unusual for lodging construction to have large swings, and, at this time, new
supply is beginning to surpass absorption, thus putting downward pressure on revenue per room and
occupancy rates.
TRENDS: � STR reports, “Affected significantly by a Memorial Day calendar shift, the industry's occupancy
decreased 6.8% to 64.6%. Average daily rate was flat at US$118.45. Revenue per available room dropped 6.8% to US$76.56.” (STR Market Report U.S., June 9, 2016)
� “In the In Construction stage, the U.S. reported 161,014 rooms in 1,241 projects, a 28.3% increase in year-over-year comparisons.” (Construction Pipeline U.S., STR April 2016)
� Green building is more commonplace in remodels and retrofits.
DRIVERS: Occupancy rate
RevPar
Average daily rate
Room starts
LODGING CONSTRUCTION PUT IN PLACEForecast as of Q2 2016
Source: FMI Research Services
72nd Quarter 2016 Report
OfficeAfter a strong show of growth in 2015 (22%), we expect office construction to cool in 2016 to a still
respectable rate of 11% growth. Much of the growth has come from an increase in employment, espe-
cially in high-tech job markets. These high growth rates will taper off to more sustainable rates in 2017
and beyond. Continued growth in the technical sector and in larger metropolitan areas like New York
City will keep rents and absorption of new space high.
TRENDS: � In the Reis Q1 2016 Office Trends report, Victor Calanog writes, “The office sector was off to a
strong start, with national vacancies falling by 20 basis points to 16.0%. This is the second consec-
utive quarter that vacancies have fallen by 20 basis points; this suggests that positive momentum
remains for office fundamentals, despite overall seasonal weakness during the colder months of
the year.” (Victor Calanog, May 18, 2016)
� CBRE reports, “Annual growth in gross asking rents accelerated to 6.0% in Q1 2016, the fastest
pace since Q2 2008. The tighter downtown market continued to lead, with year-over-year rent
growth approaching 9.0%.” (CBRE Q1 2016 U.S. Office MarketView, May 23, 2016)
DRIVERS: Office vacancy rate
Unemployment rate
OFFICE CONSTRUCTION PUT IN PLACEForecast as of Q2 2016
Source: FMI Research Services
FMI’s Construction Outlook 8
CommercialThe solid growth rate of 7% in 2015 will improve to 8% for commercial construction in 2016.
Some of the fastest-growing areas are drinking places and food services; however, building materials
and garden supply stores are currently experiencing the highest growth rate. While many national
chain stores are closing properties, new startup businesses are taking off in major metro areas. The
marketing landscape for commercial construction is changing rapidly due to technology and growing
options for consumer shopping. Disruption in traditional commercial construction is not only
occurring for online shopping but also in the form of boutique startups and the future of smart stores
both online and stick-built. This will create opportunities for contractors that can accommodate new
design ideas. Growth in nonstore sales is also driving growth in warehouse space and data centers.
TRENDS: � The Department of Commerce reports, “Retail trade sales were up 0.4% (±0.5%) from April 2016, and up 2.0%
(±0.5%) from last year. Nonstore retailers were up 12.2% (±1.2%) from May 2015, while Health and Personal Care Stores were up 8.3% (±2.1%) from last year.” (U.S. Department of Commerce, June 14, 2016)
� Consumer confidence fell 2.1 points to 91.6 in May. (The Conference Board, May 31, 2016)
� The Internet of Things (IoT) will be increasingly disruptive for commercial business, presenting both opportuni-
ties for new businesses and threats to traditional brick-and-mortar markets.
DRIVERS: Retail Sales
CPI
Income
Home prices
Housing starts
Housing permits
COMMERCIAL CONSTRUCTION PUT IN PLACEForecast as of Q2 2016
Source: FMI Research Services
92nd Quarter 2016 Report
Health CareHealth care construction is making a steady recovery. FMI is forecasting $41.3 billion in construction
put in place for 2016 — which is 3% growth. Traditional large hospital projects are returning to the
drawing boards with fewer large hospital projects in the works. The bulk of the work will be renovation
and additions as well as outpatient care. New facility designs are upping the game for a patient-centered
environment as well as reducing concerns for the spread of supergerms. Construction will continue to
become more collaborative and integrated with the various communities involved.
TRENDS: � According to the Bureau of Labor Statistics, “Employment of registered nurses is projected to grow 16%
from 2014 to 2024, much faster than the average for all occupations.”
� Veterans Administration hospitals are rocked by poor management and patient care, old facilities and huge construction cost overruns.
� According to a Health Facilities Management survey, the “industry is moving away from large-scale new construction. While 70% of respondents said they have projects currently under construction or planned in the next three years, a full three-fourths of those were expansions or renovations.” (2016 Hospital Construction Survey, Health Facilities Management)
� The new model for hospitals is the medical center with a cluster of offices including beds, which will deliver more of a patient’s needs.
� The number of ambulatory care facilities will continue to grow, pressed by the need to lower health care costs and to improve health facility profits.
DRIVERS: Population change
younger than age 18
Population change ages 18-24
Stock market
Government spending
Nonresidential structure investment
HEALTH CARE CONSTRUCTION PUT IN PLACEForecast as of Q2 2016
Source: FMI Research Services
FMI’s Construction Outlook 10
EducationEducation construction increased by 6% in 2015 to reach nearly $85 billion in construction put in
place. We now expect that rate of growth to continue in 2016, reaching $89.6 billion. Similar to health
care construction, new schools will be greener and take more advantage of new materials and technol-
ogy to create a safer, brighter space for learning. However, there is also a darker side to the need for
school renovation and construction. Schools increasingly need to have security measures in place due
to increasing threats of terrorism and deranged people entering the school with weapons. There also
need to be funding solutions to improve the deplorable conditions in inner-city schools in depressed
areas like Detroit. In order to prepare students for future careers, all schools should include modern
technology or be renovated and updated for modern computing and collaboration.
TRENDS: � Significantly less funding from states for K-12 schools.
� Enrollment growth 2.5 million in the next four years.
� New designs for schools will be more flexible for changing classrooms and greater use of natural light. Expect more use of modular building designs.
� Greater attention to energy reduction and green building technologies.
� Renovation and additions to current school buildings will continue to grow in comparison to new school projects.
� Greater focus on safe schools, as the threat for shootings on campus continues to rise.
DRIVERS: Population change
younger than age 18
Population change ages 18-24
Stock market
Government spending
Nonresidential structure investment
EDUCATION CONSTRUCTION PUT IN PLACEForecast as of Q2 2016
Source: FMI Research Services
112nd Quarter 2016 Report
ReligiousReligious construction managed to improve 4% in 2015. However, for 2016, we expect the growth
rate will be -2% to reach $3.3 billion. Although the recession can be seen as a primary reason for slow
growth in this sector, there are also many other changes in the religious landscape, including a changing
mix of religious faiths in America and fewer people who consider themselves regular churchgoers, even
if they still belong to a certain faith. Many new churches are small and established in existing buildings
like those found in vacated shopping centers. With all of these challenges, it still appears that improve-
ments in parishioners’ pocketbooks translate into higher tithes.
TRENDS: � The lending environment continues to be a challenge for many congregations.
� Establishing a capital campaign is becoming increasingly common.
� Many churches are seeing tremendous declines in contributions and tithes.
� PEW Research Center reports the share of people “who describe themselves as Christians has dropped by nearly
eight percentage points in just seven years, from 78.4% in an equally massive Pew Research survey in 2007 to
70.6% in 2014. Over the same period, the percentage of Americans who are religiously unaffiliated – describ-
ing themselves as atheist, agnostic or “nothing in particular” – has jumped more than six points, from 16.1% to
22.8%." (America’s Changing Religious Landscape, PEW Research Center, May 12, 2015)
DRIVERS: GDP
Population
Income
Personal savings rate
RELIGIOUS CONSTRUCTION PUT IN PLACEForecast as of Q2 2016
Source: FMI Research Services
FMI’s Construction Outlook 12
Public SafetySpending for public safety construction declined 5% in 2015 to $8.9 billion, and we expect that de-
cline to continue in 2016 to 8.5 billion. For 2017, we forecast a return to growth of 3%. California’s
prison system improvements and growth continue to lead the way. Otherwise, there are questions as
to how much should be privatized or publicly funded.
TRENDS: � “The United States held an estimated 1,561,500 prisoners in state and federal custody at the end of 2014, down
1% from the previous year. This was the smallest total prison population since 2005 and the second-largest
decline in more than 35 years. More than a third (34%) of the decrease was attributed to the Federal Bureau
of Prisons (BOP) population, which declined for the second consecutive year.” (Bureau of Justice Statistics,
September 2015)
� “Since 1999, the size of the private prison population grew 90%, from 69,000 prisoners in 1999 to 131,300 in
2014. The use of private prisons was at a maximum in 2012, when 137,200 inmates (almost 9% of the total U.S.
prison population) were housed in private facilities.” (Bureau of Justice Statistics, September 2015)
DRIVERS: Population
Government spending
Incarceration rate
Nonresidential structure investment
PUBLIC SAFETY CONSTRUCTION PUT IN PLACEForecast as of Q2 2016
Source: FMI Research Services
132nd Quarter 2016 Report
Amusement and RecreationAmusement and recreation construction growth pole-vaulted to reach record heights with 24% growth
in 2015. For 2016, we expect the boom to take a breather, growing at just 6% to reach $21.9 billion.
Sports venues are promoted as job creators with the ability to revitalize many dilapidated areas around
a city. The market for amusement and recreation will continue to grow as large professional teams
continue to try to keep up with their competition. With the addition of domes and retracting roofs
as well as bars, restaurants, shopping, luxury boxes and so on, sports venues are becoming more like
climate-controlled cities.
TRENDS: � Ohio Stadium is planning a $42 million renovation project.
� A dedicated soccer stadium is being built in Orlando for the Orlando City Soccer Club expansion
franchise. The opening is planned for the 2016 season.
� The new home for the Minnesota Vikings is nearing completion. The new stadium boasts an en-
closed roof designed to shed snow more easily.
� The Washington Redskins are looking at new stadium designs with over 10 years left on their cur-
rent lease.
� Competition in the gaming sector will draw business away from some existing gambling centers,
such as Atlantic City and Las Vegas, as well as from other public arenas.
DRIVERS: Income
Personal savings
Unemployment rate
AMUSEMENT AND RECREATION CONSTRUCTION PUT IN PLACEForecast as of Q2 2016
Source: FMI Research Services
FMI’s Construction Outlook 14
TransportationTransportation construction achieved a solid 7% growth in 2015, but we now expect it to slow to 4% in
2016. The boom in petrochemical manufacturing plants, particularly in the Gulf Coast region, will take
advantage of the completed Panama Canal expansion and boost transportation infrastructure in both
the South and West to accommodate increased activity from Panamax vessels. The latest news expected
to boost transportation spending is the passing of a highway transit bill. According to ASCE, “The FAST
Act provides $305 billion for highway, transit and railway programs. Of that, $233 billion is for high-
ways, $49 billion is for transit, and $10 billion is dedicated to federal passenger rail. By the end of the
bill’s five-year duration, highway investment would rise by 15%, transit funding would grow by nearly
18%, and federal passenger rail investment would remain flat.” (Peter Nonis, ASCE, December 6, 2015)
TRENDS: � According to the Association of American Railroads (AAR) report for March 30, 2016, “Total car-
loads for the week ending March 26 were 232,348 carloads, down 18.5% compared with the
same week in 2015, while U.S. weekly intermodal volume was 237,923 containers and trailers,
down 14.5% compared to 2015. . . . Two of the 10 carload commodity groups posted an increase
compared with the same week in 2015. They were miscellaneous carloads, up 18.5% to 9,629
carloads; and motor vehicles and parts, up 0.1% to 18,676 carloads. Commodity groups that
posted decreases compared with the same week in 2015 included coal, down 37.8% to 66,281
carloads; petroleum and petroleum products, down 22.1% to 10,738 carloads; and grain, down
16.1% to 19,144 carloads.”
� The FAA Modernization and Reform Act will provide $63.6 billion for the agency’s programs
between 2012 and 2015.
� “The 2015 FAA forecast calls for U.S. carrier passenger growth over the next 20 years to average
2.0% per year, slightly lower than last year’s forecast. The sharp decline in the price of oil in 2015
is a catalyst for a short-lived uptick in passenger growth.” (FAA Aerospace Forecast Fiscal Years
2015-2035)
DRIVERS: Population
Government spending
Transportation funding
TRANSPORTATION CONSTRUCTION PUT IN PLACEForecast as of Q2 2016
Source: FMI Research Services
152nd Quarter 2016 Report
CommunicationCommunication construction put in place in 2016 will improve 4% over 2015, reaching $20.3 billion.
The trend for communications is likely to be more integration and mergers in order to capture market
share. The current trend is for building more data centers and beefing up security and privacy against
potential interlopers and severe weather events. The increasing need for data storage is not driven just
by corporate and government use. The trend continues to merge telecommunications for entertainment
and data that will be offered by a few competing service providers. Add to this the growing Internet
of Things that will connect smartphones and computers to anything that has a chip and the ability to
connect to the internet, such as automobiles, manufacturing equipment, personal monitoring devices
and kitchen appliances.
TRENDS: � The AT&T/Direct TV merger has been approved. One of the stipulations of the approval is that
AT&T connects fiber-optic service to 12.5 million new customer locations.
� “Mini towers” for increasing coverage and spectrum will proliferate rapidly in the next five years.
� Google’s Google Fiber arm is deploying high-speed gigabit connections in selected metro areas.
� Data security is critical for large businesses and governments in the face of potential disasters and
threats from hackers and foreign enemies.
DRIVERS: Innovation/technology
Global mobility
Population
Security/regulatory
standards
Private investment
COMMUNICATION CONSTRUCTION PUT IN PLACEForecast as of Q2 2016
Source: FMI Research Services
FMI’s Construction Outlook 16
ManufacturingManufacturing construction took a heavy hit during the Great Recession, but it has more than caught
up as of 2015, with a whopping growth of 44% for the year and a more modest 4% growth expected for
2016. In either case, new records are being set for manufacturing construction investment. Currently,
at just 75.3% for April 2016, manufacturing capacity utilization has yet to top the long-term average
of 78.5%. Continued low energy prices will hold down capacity additions in the oil and gas sector, but
help those relocating or expanding in other areas of manufacturing, including the current boom in the
petrochemical areas. The completion of the Panama Canal expansion project is expected to decrease
costs and increase shipments from Gulf Coast ports between the U.S. and Asia.
The need for talented workers in manufacturing will continue to compete with construction as both
face the same problems of recruiting the next generation to replace retiring baby boomers.
TRENDS: � Since the U.S. has lifted the ban on exporting crude oil, exports have increased from 1.2 million barrels in January
to 6 million barrels in March. A drop in the bucket, considering we still imported 8 million barrels of crude in
March. (Matt Egan, CNN Money, June 6, 2016)
� With little change since last quarter, manufacturing capacity utilization rates are at 75.3% of capacity in April
2016, which was below the historical average of 78.5%.
� The U.S. Department of Commerce reports, “Shipments of manufactured durable goods in April, up following
two consecutive monthly decreases, increased $1.5 billion or 0.6% to $232.5 billion. This followed a 0.8% March
decrease.” (May 26, 2016)
� “New orders for manufactured durable goods in April increased $7.7 billion or 3.4% to $235.9 billion, the U.S.
Census Bureau announced today. This increase, up three of the last four months, followed a 1.9% March in-
crease.” (U.S. Census Bureau, May 26, 2015)
� The PMI for May 2016 was at 51.3% according to the Manufacturing ISM® Report On Business®.
DRIVERS: PMI
Industrial production
Capacity utilization
Durable goods orders
Manufacturing inventories
MANUFACTURING CONSTRUCTION PUT IN PLACEForecast as of Q2 2016
Source: FMI Research Services
172nd Quarter 2016 Report
PowerAfter a strong year in 2014, power construction declined sharply in 2015, losing 14%. We expect a
small recovery of 3% in 2016 to reach $89.7 billion for construction put in place.
The power industry is in flux due to changing fuel supplies using more natural gas and less coal as well
as variable rates of growth in alternative energy sources like solar and wind. Power plants must be up-
dated to keep up with changing requirements as well as to manage distributed generation sources. The
power industry will continue to consolidate as the average consumer reduces power use, but growth
will flatten-out in 2016 and 2017.
TRENDS: � Power companies are placing greater emphasis on flexibility to respond to peak needs alongside hydropower,
solar and wind-generating facilities.
� According to The Edison Foundation, “The United States currently has enough solar capacity installed to power
approximately 4.6 million homes. Solar is the fastest-growing source of renewable energy in the U.S. Already it
reduces carbon dioxide emissions by 23.5 million metric tons each year—the equivalent of taking 4.9 million
cars off the road.” (Key Trends Driving Changes in the Electric Power Industry, The Edison Foundation, Institute
for Electric Innovation, December 2015)
DRIVERS: Industrial production
Population
Nonresidential structure investment
POWER CONSTRUCTION PUT IN PLACEForecast as of Q2 2016
NONBUILDING STRUCTURES
Source: FMI Research Services
FMI’s Construction Outlook 18
Highway and StreetHighway and street construction increased 7% in 2015 to $90.1 billion. FMI forecasts another 5%
growth for 2016. Even though the passing of the Fixing America's Surface Transportation (FAST) Act
for highway and transportation funding for the next five years removes much uncertainty for highway
funding, we do not expect a significant jump in spending over current rates in 2016 through our fore-
cast horizon of 2020. The onus will still be on states and communities to find funding for many of their
highway and bridge repair needs, and funding for FAST is seen by many as tentative, as it is not based
on a fuel tax.
TRENDS: � Passage of the Fixing America's Surface Transportation (FAST) Act removes some budgeting uncertainty and
provides a five-year horizon for planning.
� According to Finance and Commerce, “About $163 billion is needed annually over a six-year period for high-
ways, bridges and transit systems, yet only about $105 billion is being invested, according to a December report
from the American Association of State Highway and Transportation Officials and the American Public Transpor-
tation Association.” (finance-commerce.com/2015/04)
DRIVERS: Population
Government spending
Nonresidential structure investment
HIGHWAY AND STREET CONSTRUCTION PUT IN PLACEForecast as of Q2 2016
Source: FMI Research Services
192nd Quarter 2016 Report
Sewage and Waste DisposalConstruction put in place for sewage and waste disposal construction grew 7% in 2015 and will con-
tinue at the rate of 4% in 2016. “By and large, the onus of public funding water and wastewater capital
projects has been on state and local governments for the past couple of decades. In 2014, even after five
years of decline, state and local governments still accounted for more than 90% of all public spending
on capital projects. The recent decrease in local and state government capital expenditures may thus be
of particular concern if it continues for a few more years.” (Shadi Eskaf, “Four Trends in Government
Spending on Water and Wastewater Utilities Since 1956,” University of North Carolina, September 9,
2015)
TRENDS: � Growth, driven by aging infrastructure and regulation, is on the horizon, but the length of the horizon is still
unknown. Slow water infrastructure markets in the aftermath of the recession continue to build the backlog of
necessary work as existing infrastructure ages.
� In need of replacement and upgrades, the 16,000 wastewater systems nationwide discharge more than 850 bil-
lion gallons of untreated sewage into surface waters each year.
� Combined sewer systems (stormwater and sewage) serve roughly 950 communities with about 40 million peo-
ple. Most communities with CSOs are located in the Northeast and Great Lakes.
� The Clean Water State Revolving Fund (CWSRF) programs have provided more than $5 billion annually in re-
cent years to fund water-quality protection projects.
DRIVERS: Population
Industrial production
Government spending
SEWAGE AND WASTE DISPOSAL CONSTRUCTION PUT IN PLACEForecast as of Q2 2016
Source: FMI Research Services
FMI’s Construction Outlook 20
Water SupplyWater supply construction grew 2% in 2015, and it is expected to maintain a steady, slow-growth pat-
tern in 2016. In some regions of the nation, specifically California, water is the new oil. Like oil, one
of the concerns for water besides scarcity is storage. Among the concerns are conveyance to the right
place according to need. More people will be asked to pay more for water as water becomes a scarcer
commodity, considering increased population, agricultural and industrial needs. Whether one believes
in global climate change or not, states will need to be strategic and proactive in both freshwater needs
and sewage disposal and recycling.
TRENDS: � “With California still experiencing severe drought despite recent rains, on February 2, 2016, the State Water
Board adopted an extended and revised emergency regulation to ensure that urban water conservation continues
in 2016. The regulation extends restrictions on urban water use through October 2016 while providing urban
water suppliers more flexibility in meeting their conservation requirements. It also directs staff to report back on
additional flexibility once more complete water supply information is known in April.” (California State Water
Sources Control Board)
� Green construction practices, such as controlling runoff to help increase groundwater, will become the norm for
improvements and new construction.
DRIVERS: Population
Industrial production
Government spending
WATER SUPPLY CONSTRUCTION PUT IN PLACEForecast as of Q2 2016
Source: FMI Research Services
212nd Quarter 2016 Report
Conservation and DevelopmentConservation and development construction grew 10% in 2015. We expect that growth to slow to
just 4% in 2016, reaching $8.4 billion. The president’s 2017 budget for the Civil Corp of Engineers
allots $1.09 billion for construction. “By program area, the 33 funded construction projects consist
of 17 flood risk management projects (two funded for completion), nine aquatic ecosystem restora-
tion projects, six commercial navigation projects (three funded for completion), and one hydropower
project (funded for completion).” (President's Fiscal 2017 Budget for U.S. Army Corps of Engineers
Civil Works released, PRNewswire, February 9, 2016, from U.S. Army Corps of Engineers.)
DRIVERS: Population
Government spending
CONSERVATION AND DEVELOPMENT CONSTRUCTION PUT IN PLACEForecast as of Q2 2016
Source: FMI Research Services
FMI’s Construction Outlook 22
Construction Put in PlaceEstimated for The United StatesMillions of Current Dollars2nd Quarter 2016 Forecast (based on Q1 2016 Actuals)
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
RESIDENTIAL BUILDINGS
Single-Family 109,984 133,668 171,837 194,091 219,072 237,503 249,973 258,429 268,416 278,629
Multifamily 17,821 25,758 35,169 46,250 57,533 61,712 64,577 67,203 70,222 72,764 Improvements* 124,842 116,631 122,210 134,759 148,132 153,174 157,882 161,439 164,282 167,492
Total Residential 252,646 276,057 329,217 375,100 424,737 452,389 472,433 487,071 502,919 518,885
NONRESIDENTIAL BUILDINGS
Lodging 9,129 10,836 13,484 16,124 21,054 24,090 25,765 26,610 27,149 27,526
Office 36,011 37,800 37,979 46,056 56,049 61,976 65,185 68,182 70,057 70,464
Commercial 42,816 47,335 53,159 62,708 67,404 72,854 75,541 77,503 78,984 80,313
Health Care 40,204 42,544 40,689 38,410 39,962 41,252 43,872 47,122 50,115 54,154
Educational 84,985 84,672 79,060 79,700 84,879 89,624 93,703 98,880 105,361 112,237
Religious 4,239 3,846 3,590 3,248 3,377 3,322 3,384 3,486 3,607 3,670
Public Safety 10,407 10,431 9,506 9,380 8,896 8,458 8,732 9,058 9,430 9,803
Amusement and Recreation 15,995 15,480 15,207 16,630 20,681 21,926 23,105 23,466 23,850 24,181
Transportation 34,737 37,862 39,459 41,786 44,786 46,730 50,530 53,967 57,186 58,849
Communication 17,685 16,165 17,783 17,093 19,511 20,340 21,483 22,585 23,659 24,376 Manufacturing 40,559 47,741 50,548 57,761 83,384 86,824 92,270 95,971 99,427 101,456
Total Nonresidential Buildings 336,767 354,712 360,464 388,896 449,983 477,395 503,570 526,830 548,825 567,027
NONBUILDING STRUCTURES
Power 75,185 97,434 93,317 101,216 87,167 89,684 92,902 99,851 108,281 114,510
Highway and Street 79,322 80,546 81,364 84,220 90,068 94,779 98,251 100,863 103,312 105,200
Sewage and Waste Disposal 22,710 22,261 22,425 23,321 25,064 26,187 27,214 28,408 29,501 31,017
Water Supply 14,163 13,218 13,597 13,334 13,563 13,795 14,264 14,661 15,198 15,759 Conservation and Development 7,538 6,228 5,967 7,323 8,091 8,420 8,813 9,398 10,075 10,818
Total Nonbuilding Structures 198,918 219,687 216,670 229,414 223,953 232,865 241,445 253,181 266,368 277,305
Total Put in Place 788,331 850,456 906,351 993,410 1,098,673 1,162,650 1,217,448 1,267,081 1,318,112 1,363,217
*Improvements includes additions, alterations and major replacements. It does not include maintenance and repairs.
Construction Put in Place
Change From Prior Year - Current Dollar Basis2nd Quarter 2016 Forecast (based on Q1 2016 Actuals)
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
RESIDENTIAL BUILDINGS
Single-Family -3% 22% 29% 13% 13% 8% 5% 3% 4% 4%
Multifamily 2% 45% 37% 32% 24% 7% 5% 4% 4% 4%Improvements* 3% -7% 5% 10% 10% 3% 3% 2% 2% 2%
Total Residential 0% 9% 19% 14% 13% 7% 4% 3% 3% 3%
NONRESIDENTIAL BUILDINGS
Lodging -22% 19% 24% 20% 31% 14% 7% 3% 2% 1%
Office -5% 5% 0% 21% 22% 11% 5% 5% 3% 1%
Commercial 7% 11% 12% 18% 7% 8% 4% 3% 2% 2%
Health Care 2% 6% -4% -6% 4% 3% 6% 7% 6% 8%
Educational -4% 0% -7% 1% 6% 6% 5% 6% 7% 7%
Religious -20% -9% -7% -10% 4% -2% 2% 3% 3% 2%
Public Safety -7% 0% -9% -1% -5% -5% 3% 4% 4% 4%
Amusement and Recreation -6% -3% -2% 9% 24% 6% 5% 2% 2% 1%
Transportation -9% 9% 4% 6% 7% 4% 8% 7% 6% 3%
Communication 0% -9% 10% -4% 14% 4% 6% 5% 5% 3%Manufacturing -2% 18% 6% 14% 44% 4% 6% 4% 4% 2%
Total Nonresidential Buildings -3% 5% 2% 8% 16% 6% 5% 5% 4% 3%
NONBUILDING STRUCTURES
Power -4% 30% -4% 8% -14% 3% 4% 7% 8% 6%
Highway and Street -4% 2% 1% 4% 7% 5% 4% 3% 2% 2%
Sewage and Waste Disposal -13% -2% 1% 4% 7% 4% 4% 4% 4% 5%
Water Supply -8% -7% 3% -2% 2% 2% 3% 3% 4% 4%Conservation and Development 5% -17% -4% 23% 10% 4% 5% 7% 7% 7%
Total Nonbuilding Structures -5% 10% -1% 6% -2% 4% 4% 5% 5% 4%
Total Put in Place -3% 8% 7% 10% 11% 6% 5% 4% 4% 3%
*Improvements includes additions, alterations and major replacements. It does not include maintenance and repairs.
Estimated for The United States
232nd Quarter 2016 Report
CONSUMER PRICE INDEXInflation Remains Low
APPENDIX
FMI’s Construction Outlook 24
CONSTRUCTION UNEMPLOYMENT RATES
EMPLOYMENT AND UNEMPLOYMENT RATE COMPARISON
252nd Quarter 2016 Report
CONSTRUCTION AS A PERCENTAGE OF GDP
MONTHLY HOUSING SUPPLY
Federal Reserve Economic Data, https://research.stlouisfed.org/fred2
FMI’s Construction Outlook 26
CONSTRUCTION SPENDING AND NOMINAL GDP
Value of Construction Put in Place—Seasonally Adjusted Annual Rate (Millions of Dollars)
Total Construction Put in Place (April 2015)
% of Total Construction Put in Place (Q2 2015)
Total Construction Put in Place (Q2 2016 Forecast)
% of Total Construction Put in Place (Q1 2016)
*Public Construction $287,432 26% $290,787 25%
*State and Local $265,575 24% $268,744 23%
*Federal $21,857 2% $22,043 2%
FMI Forecast: Private Construction Put in Place $810,722 74% $871,863 75%
FMI Forecast: Construction Put in Place $1,098,154 100% $1,162,650 100%
* from U.S. Census Bureau Construction Spending
(Millions of dollars. Details may not add to totals due to rounding.)
VALUE OF PUBLIC CONSTRUCTION PUT IN PLACE – SEASONALLY ADJUSTED RATE
CONFERENCE BOARD CONSUMER CONFIDENCE INDEX
0
20
40
60
80
100
120
Dec
03 Mar Jun Sep
Dec
04 Mar Jun Sep
Dec
05 Mar Jun Sep
Dec
06 Mar Jun Sep
Dec
07 Mar Jun Sep
Dec
08 Mar Jun Sep
Dec
09 Mar Jun Sep
Dec
10 Mar Jun Sep
Dec
11 Mar Jun Sep
Dec
12 Mar Jun Sep
Dec
13 Mar Jun Sep
Dec
14 Jan
Feb
Mar Apr
May Jun Jul
Aug
Sep
Oct
Nov
Dec
15 Jan
Feb
Mar Apr
May
BenefitsA Construction Market Forecast FromFMI’s Research Services Group Can:____________________________________
� Supply the market-oriented, economy-driv-
en dimension essential for preparing, imple-
menting and monitoring strategic plans.
� Be a significant aid in defining, targeting,
implementing and monitoring other critical
corporate decisions, such as long- and short-
term sales goals or redirecting resources (i.e.,
on a geographic or a product-line basis).
� Provide the basis for estimating submarkets.
� Provide the basis for comparing performance
among markets.
� Provide the basis for identifying activities that
are beneficial or detrimental to performance.
Features Each Standard Construction Market Forecast:____________________________________
� Details construction put in place in three
residential building, 11 nonresidential build-
ing and five nonbuilding structure categories.
It covers the current year, eight previous
years and five forecast years. It is available for
any county in the U.S. or any combination of
counties, metropolitan statistical areas, states,
regions, etc.
� Includes both construction values and an-
nual percentage changes. Delivery time de-
pends on the size of the request but is usually
only a few days. It can be delivered in printed
or electronic form and in most major text or
spreadsheet formats. Graphs can be provided
at additional cost.
Basis____________________________________
� Historical information in FMI’s standard
Construction Market Forecast is based on
building permits and construction put in
place data as provided by the U.S. Com-
merce Department. Forecasts are based on
econometric and demographic relationships
developed by FMI, on information from
specific projects gathered from trade sources,
and on FMI’s analysis and interpretation of
current and expected social and economic
conditions.
Other Reports____________________________________
� Reports on state and federally financed
highway construction are available for most
counties or combinations of counties.
� Custom reports on a wide variety of con-
struction-related topics can be prepared by
FMI.
� Reports are based on multiple sources and
are appropriate for preliminary analytical and
planning purposes but contain little or no
direct observation of the area described and
are not guaranteed by FMI to be accurate.
For more information,call 919.785.9268.
J. Randall (Randy) Giggard Managing Director Research Services
Randy Giggard is responsible for design,
management and performance of primary
and secondary market research projects
and related research activities, including
economic analysis and modeling,
construction market forecasting and
database management. Randy’s particular
expertise is in the areas of market sizing and
modeling, competitive analysis, sales and
market performance evaluations, buying
practices and trends analysis.
Randy holds undergraduate degrees in
mechanical engineering from Southern
Illinois University and in English from
Illinois State University and a master's of
marketing and management policy from
Northwestern University.
T 919.785.9268
Email: [email protected]
www.fminet.com
About FMI’s Research Services GroupAs the construction industry becomes increasingly competitive, market intelligence becomes an
important tool for the building industry. A more complete understanding of the market, market trends,
customer perceptions, buying practices, competitor profiles and other market influencers will enhance
craft labor studies.
Since 1953, FMI has provided consulting and training services specialized for the construction industry.
FMI’s market research includes both secondary and primary research designed to meet clients’ specific
needs. Both types of research are used to provide accurate assessments in a timely, efficient and concise
manner for clients.
Typical project work performed includes customer buying practices, competitive analyses, market-size
modeling, market forecasts and trends, channel performance analyses, customer satisfaction surveys and
sales performance evaluations.
About FMIFounded in 1953 by Dr. Emol A. Fails, FMI is the leading management consulting, investment banking† and people development
firm dedicated exclusively to the engineering and construction industry. FMI professionals serve all sectors of the industry and
combine more than 60-plus years of industry context and leading insights to achieve transformational outcomes for our clients.
We have subject matter experts in the following practice areas and serve clients throughout the U.S., Canada and internationally:
� Strategy
� Market Research
� Business Development
� Operations and Project Execution
� Risk Management
� Compensation
� Peer Groups
� Performance Management
� M&A Representation
� Valuations and Fairness Opinions
� Private Capital Placement
� Ownership Transfer Planning
� Organizational Leadership Development
� Leadership Training
� Executive Coaching
� Succession Planning
� Training and Talent Development
Management Consulting Investment Banking† People Development
† Investment banking services provided by FMI Capital Advisors, Inc., a registered broker-dealer and wholly owned subsidiary of FMI.
Denver210 University BoulevardSuite 800Denver, CO 80206303.377.4740
www.fminet.com
Copyright © 2016 FMI Corporation
Notice of Rights: No part of this publication may be reproduced or transmitted in any form, or by any means, without permission from the publisher.
Phoenix7639 East Pinnacle Peak RoadSuite 100Scottsdale, AZ 85255602.381.8108
Raleigh (headquarters) 5171 Glenwood AvenueSuite 200Raleigh, NC 27612919.787.8400
Tampa308 South BoulevardTampa, FL 33606813.636.1364
Houston9303 New Trails DriveSuite 350The Woodlands, TX 77381713.936.5400