Where to Find Work in 2019 (and 2020)

A sign company’s guide to industry-by-industry construction forecasts.
Where to Find Work in 2019 (and 2020)

Sign companies, we’re about to fact check you. By a 12-to-1 margin, our recent State of the Industry respondents told us they expect recent healthy profits to spill over into an even more profitable immediate future. How does this expectation square with construction forecasting experts? Although nonresidential construction is anticipated by experts to continue to grow during 2019, that increase is anticipated to be more marginal than 2018 in most specific areas, and to slow even further in 2020. Though the economy in general is strong, a combination of many market forces are poised to rein in the rate of expansion. That’s the nutshell of the American Institute of Architects’ (AIA, Washington) nonresidential construction forecast by Kermit Baker.

Nonresidential total construction growth

“Spending on nonresidential buildings nationally is projected to grow by 4.4 percent this year, paced by healthy gains in the industrial and institutional building sectors,” Baker wrote. “For 2020, growth is projected to slow to 2.4 percent, with essentially no increase in spending on commercial facilities but gains in the 3 percent range in the industrial and institutional categories.” Baker also reported “concern inside and outside of the industry that a broader economic downturn may be materializing over the next 12 to 24 months.”

The commercial subset of nonresidential construction, which includes office, retail and hotels, is forecast to grow by 3.5% in 2019 before nearly stalling at 0.6% in 2020. It’s probably fair to say that the most dollars are spent on signage in this sector. The institutional subset, which includes health, education and amusement/recreation construction – which also purchase signage – is forecast for 4.8% growth in 2019 followed by 2.9% in 2020.

“An important question going into 2019 is whether deceleration is followed by a period of high level stability or a period of decline,” wrote Robert A. Murray, chief economist for Dodge Data & Analytics. “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... Long-term interest rates will also rise,” all contributing to a reduction in the rate of growth in 2019 followed by a further reduction in 2020.

Other factors putting pressure on construction include the scarcity of labor, as “the unemployment rate for jobseekers with recent construction experience dropped to 3.6% in October [2018], the lowest October rate in a series dating to 2000,” wrote Ken Simonson for Contracting Business. In addition, “Materials costs have become an even bigger concern … In 2018, tariffs were imposed with little notice on steel, aluminum, lumber and a wide variety of Chinese imports. Domestic suppliers matched many of these increases or even raised prices in anticipation of them.”

With an economic slowdown predicted for 2019 and 2020, which sign-relevant sectors will remain hardy?

Office construction

Office construction looks to be the strongest commercial sector, with 5.1% growth projected for this year and 1.2% in 2020, according to Kermit Baker of AIA. “This sector has benefited from strong job growth, and the apparent bottoming out of the years-long decline in office space per employee,” he wrote, adding that much of the increase has come from the technology sector. According to an article posted in Dec. 2018 by Construction Analytics, “Although the rate of growth slowed in 2017 and 2018, the total amount of [office] starts is at an all-time high.” However, in the last 12 months, “there are no less than a dozen project starts valued each at over $500 million, a few of those over $1 billion. That high-volume period of starts will elevate spending through 2019 and well into 2020.” 

Retail construction

“While only about 10 percent of total sales, e-commerce has been growing at about three times the rate of traditional brick-and-mortar sales,” Baker wrote. “Instead, larger shares of investment in these facilities is going to the renovation of existing buildings, resulting in a [1.9%] forecast growth for 2019, followed by a nearly flat [0.4%] for 2020.” Here, there could be a bright spot for sign companies, as retail renovations almost always involve signage and graphics makeovers. Construction Analytics offered another insight: “The decline in retail stores is being hidden by the increase in warehouses, which are at an all-time high. Stores are down 10% from the peak in 2016. Warehouses are still up only 4% in 2018 but increased 500% from 2010 to 2017.”

Hotel construction

Dodge Data & Analytics’ Robert A. Murray predicted that “hotel construction will ease back from recent strength,” with lodging spending having increased 12% in 2018, according to Construction Analytics. “Beyond 2018, spending will decline, but this is after 6 years of growth totaling 300%.” They further noted that lodging projects are completed more quickly than most other types of nonresidential buildings and that a greater-than-average percentage of lodging spending occurs within the year started. For sign companies, this means a new hotel’s purchasing window is one year, but with AIA’s consensus forecast for the hotel sector as 3.9% growth in 2019 followed by -0.7% in 2020, you better get that work this year.

Healthcare construction

“Healthcare building spending is benefiting from extremely favorable underlying demographics, but growth has been tempered by uncertain implementation and modifications to the federal Affordable Care Act,” Baker wrote. The outlook looks a bit brighter now, with the ACA apparently here to stay, buoying the AIA’s outlook for 2019 as 4% growth, and 2020’s a steady 3.6%. Murray concurred, “Healthcare projects will make a partial rebound after pulling back in 2018.” Construction Analytics had a different take, expecting a greater decline in 2019. Healthcare signwork not included in new construction includes rebranding and change outs of existing hospital and healthcare alliances, so this looks like a stable sector for the sign industry.

Education construction

Education facilities are the largest nonresidential building sector, accounting for over 20% of overall spending, according to the AIA’s Baker. “While demographic trends are generally favorable to the education construction outlook, fiscal developments are the real growth engine.” (Read: rising values of homes feed tax revenues for schools.) Baker also noted, “The rising stock market in recent years had built up endowments for private schools and colleges to expand their facilities.” Construction Analytics’ forecast for educational construction spending is predicted at $93 billion in 2019 and $103 billion in 2020, and the AIA puts its estimated growth for spending in this sector at 5.5% for 2019 followed by 4.1% for 2020. As schools and universities compete for students, sign packages conveying higher-end experiences, particularly involving video/message screens are becoming more attractive.

Amusement + recreation construction

Construction Analytics wrote, “Amusement/Recreation construction spending for 2018 is forecast to reach $28 billion, an increase of 12% over 2017. 2019 is forecast to increase 12% to $31 billion.” However, similar to the skewing of spending in the office sector, they reported, “Within the past 15 months there have been five billion-dollar project starts,” so once again, much money is tied up within a number of projects you can literally count on one hand. AIA has predicted a healthy 4.4% rate of growth for amusement/recreation construction for 2019, but only 0.6% growth for 2020. Even if your shop isn’t located near the site of a new mega-stadium, there are smaller-scale versions, parks and other diversions, usually looking to distinguish the unique experience each offers, and that calls for custom signwork.

As ever, high-quality, affordable signs are in demand across all sectors; the forecast there remains sunny. As you’re planning and working in 2019, it’s your turn to fact-check us. Tell us how these predictions play out – and send photos of your best work to mark.kissling@stmediagroup.com.

Signs of the Times May 2019

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