Construction industry outlook session at Sage Summit didn’t disappoint

I found out on my first trip to Sage Summit that if I only registered for sessions labeled for marketing that I could miss out on learning valuable information. So ever since 2013, I make sure I read the entire list of sessions to see if anything catches my eye.

Construction industry outlook

The “What’s the outlook for the construction industry in 2017?” session was standing room only.

This year was no different. When I was registering for Sage Summit 2016, I found a session I thought would be interesting called “What’s the outlook for the construction industry in 2017?” And sure enough, it didn’t disappoint.

One of the interesting parts of my job is learning about the industries that Practical Software Solutions serves. To me, they’re all puzzles. If you learn about individual pieces of the puzzle — even if you don’t pick up on every detail — you can see the bigger picture appear in front of your eyes.

It doesn’t take a master’s degree in economics to know that the economy as a whole is interdependent upon different industries. Anyone who goes grocery shopping knows that the price of food will fluctuate with the cost of filling your gas tank.

But after attending this session at Sage Summit, I didn’t realize just how many industries are intertwined with each other.

Charter schools, Panama Canal affecting 2017 construction industry outlook

So what do charter schools and the Panama Canal have in common? They’re both being forecast to affect the commercial construction industry in 2017, according to Ken Simonson, who led this session at Sage Summit.

Simonson has been the chief economist for the Associated General Contractors of America, the leading trade association for the commercial construction industry, since 2001. With 40 years experience of analyzing and reporting on economic and tax issues, he’s pretty well qualified to spot economic trends.

Construction industry outlook 2

The rise of new charter schools is looking to cause a downward trend in industrial construction in 2017.

One of these trends that Simonson noted in his presentation is the trend of increasing attendance at charter schools — free public schools with open enrollment that offer a less standardized education than a traditional public school. With greater enrollment in charter schools across the country, more charter schools are expected to open in 2017.

The rub — at least in terms of the construction industry — is that charter schools do not begin the same way as traditional public schools. When the local school board and government deem a new traditional public school is needed to meet a growing population, they build a new school.

When a new charter school begins, it starts out in a pre-existing building, like a strip mall. Then, when its population grows large enough to support its own facility, then it will consider building a school. This process can take years before there’s enough support to warrant building a bricks-and-mortar school.

We actually see this same model in our area, which has a high number of independent Protestant churches. A group of people who want to start a new church don’t just go, “OK, first we need to build a cathedral.” Much like charter schools, they’ll start out in someone’s living room, and then go to a school cafeteria, and then maybe a larger building, and so on.

So as more children go to charter schools, it puts a dent in the need for communities to build public schools. Granted, this can be a good thing to help communities save money and relieve overcrowded public schools. However, it signals a downward trend for industrial construction for the coming year.

On the other end of the spectrum, the Panama Canal is expected to cause an uptick in construction in the United States in 2017, according to Simonson. The canal that connects the Atlantic and Pacific oceans finished a 10-year major expansion project in June. Panamax class container ships that could travel through the canal went from 5,000 TEUs (Twenty Foot Equivalent Units, the standard unit of measure of ship capacity) to 13,000 TEUs.

Construction industry outlook 3

Now that the Panama Canal can take on container ships nearly three times as large as before, construction is trending to increase at major U.S. ports.

It’s not often that you think about the end of a major construction project increasing construction, but that’s what’s expected to happen across the United States. Well, at least around the coastal areas of the United States.

Think about it: If the size of a container ship that can get through the Panama Canal has almost tripled, doesn’t it stand to reason that the major ports in the United States will need to expand to accommodate the 13,000 TEU Panamax ships? That’s how Simonson is reading the data for the construction industry, and therefore, he believes construction in this area for 2017.

DemandLink shows industry inter-connectivity

Earlier this year, I wrote about how DemandLink helps manufacturers of seasonal goods forecast demand using about 35,000 points of data. Most of our customers who use DemandLink are greenhouse growers, but it’s also being used for other industries, such as consumer electronics and fashion.

When I was attending Simonson’s session at Sage Summit, I thought about DemandLink and its ability to point out how outside influences can affect the state of an industry. For the horticulture industry, some influences are naturally occurring — such as an early spring in their area or an unexpected cold snap. This could affect when people go to their local big-box retailer to buy flowers to plant.

Along the same vein, housing starts can also affect the horticulture industry, and thus tying back to the construction industry. The link is if housing starts are up in a certain area, more landscapers will need to have more product available from commercial growers. More housing, more landscaping needs, more flowers needed to landscape yards.

I think this may be why I was fascinated with Simonson’s statistics. It’s amazing how the puzzle that is the U.S. economy fits together, and I enjoyed learning more about how it works.

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