Rock Products

DEC 2018

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26 • ROCKproducts • December 2018 Regional Reports T his issue of Rock Products features nine regional reports, with information about aggregates production, construc- tion activity, legislative initiatives and manufacturer news. The information is broken down by region, based on the U.S. Geological Survey's quarterly reports. The regions are: • New England (CT, MA, ME, NH, RI, VT). • Middle Atlantic (NJ, NY, PA). • East North Central (IL, IN, MI, OH, WI). • West North Central (IA, KS, MN, MO, NE, ND, SD). • South Atlantic (DE, FL, GA, MD, NC, SC, VA, WV). • East South Central (AL, KY, MS, TN). • West South Central (AR, LA, OK, TX). • Mountain (AZ, CO, ID, MT, NM, NV, UT, WY). • Pacific (AK, CA, HI, OR, WA). For additional guidance on construction activity that impacts aggregates markets, Dodge Data & Analytics just released its 2019 Dodge Construction Outlook, a mainstay in construc- tion industry forecasting and business planning. The report predicts that total U.S. construction starts for 2019 will be $808 billion, staying essentially even with the $807 billion estimated for 2018. Robert Murray Speaks "Over the past three years, the expansion for the U.S. construc- tion industry has shown deceleration in its rate of growth, a pattern that typically takes place as an expansion matures," stated Robert A. Murray, chief economist for Dodge Data & Analytics. "After advancing 11 percent to 14 percent each year from 2012 through 2015, total construction starts climbed 7 percent in both 2016 and 2017, and a 3 percent increase is estimated for 2018. There are, of course, mounting head- winds affecting construction, namely rising interest rates and higher material costs, but for now these have been balanced by the stronger growth for the U.S. economy, some easing of bank lending standards, still healthy market fundamentals for commercial real estate, and greater state financing for school construction and enhanced federal funding for public works. "An important question going into 2019 is whether decel- eration is followed by a period of high level stability or a period of decline," Murray stated. "For 2019, it's expected that growth for the U.S. economy won't be quite as strong as what's taking place in 2018, as the benefits of tax cuts begin to wane. Short-term interest rates will rise, as the Federal Reserve continues to move monetary policy toward a more neutral stance. Long-term interest rates will also rise, reflect- ing higher inflationary expectations by the financial markets. At the same time, any erosion in market fundamentals for commercial real estate will stay modest. In addition, the greater funding from state and local bond measures passed in recent years will still be present, and it's likely that federal spending for construction programs will increase once all the federal appropriations bills for fiscal 2019 are finalized. In this environment, it's forecast that growth for construction starts will decelerate further, but not yet make the transition to the point where the overall volume of activity declines. For 2019, total construction starts are forecast to hold basi- cally steady at $808 billion. By major sector in dollar terms, residential building will be down 2 percent, nonresidential building will match its 2018 amount, and nonbuilding con- struction will increase 3 percent." The pattern of construction starts by more specific segments is the following: • Single-family housing will be unchanged in dollar terms, alongside a modest 3 percent drop in housing starts to 815,000 (Dodge basis). There will be a slight decline in homebuyer demand as the result of higher mortgage rates, diminished affordability, and reduced tax advantages for home ownership as the result of tax reform. • Multifamily housing will slide 6 percent in dollars and 8 percent in units to 465,000 (Dodge basis). Market funda- mentals such as occupancies and rent growth had shown modest erosion prior to 2018, which then paused this year due to the stronger U.S. economy. However, that erosion in market fundamentals is expected to resume in 2019. • Commercial building will retreat 3 percent, following 2 percent gains in 2017 and 2018, as well as the substan- tial percentage increases that took place earlier. While 2018 market fundamentals for offices and warehouses are healthy, next year vacancy rates are expected to rise as the economy slows, slightly dampening construction. Hotel construction will ease back from recent strength, and store construction will experience further weakness. • Institutional building will advance 3 percent, picking up the pace slightly from its 1 percent gain in 2018 which itself followed an 18 percent hike in 2017. Educational facilities should see continued growth in 2019, supported by funding coming from numerous school construction bond measures. Healthcare projects will make a partial rebound after pulling back in 2018. Airport terminal and amusement-related projects are expected to stay close to the elevated levels of construction starts reported in 2017 and 2018. Regional Reports By Mark S. Kuhar and Josephine Patterson

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