Top industry trends to watch in 2015
Mid-market companies can profit by harnessing industry knowledge to build smarter, more agile enterprises
By Ned Reynolds
The U.S. construction outlook could be analogous to a tale of two cities in 2015, with stabilizing and perhaps flattish residential demand offset by continued strong, if not strengthening demand, both reflecting a relatively improving economy and rising interest rates. Among the new directions we see for 2015 are the following:
Non-residential construction should be solid, propelled by elimination of slack in the economy. GE Capital forecasts real GDP to grow 2.6 percent in 2015, up from a projected 2.1 percent in 2014 with a modestly slower but continued solid growth in industrial production of 3.5 percent. As a result, the American Institute of Architects projects overall non-residential building construction to rise 8 percent in 2015, compared to a rise of 4.9 percent in 2014, driven by strong growth in office buildings, industrial facilities and hotels.
U.S. construction machinery capital expenditures are projected to rise almost 14 percent year-over-year (YoY), after growing 7 percent YoY in 2014, according to IHS Global Insight. As with non-residential construction, machinery cap-ex will be driven by relatively low office and industrial vacancy rates as well as an uptick in hotel construction due to growth in revenue-per-available room (RevPAR). In particular, industrial demand should remain strong as retailers build out distribution facilities to speed order fulfillment.
Residential construction could be a wild card for the year, as rising interest rates may lead to a further rise in 30-year mortgage rates, hindering the market. However, this could take time to play out with rates currently at about 4.0 percent, well above the historic lows of about 3.3 percent seen in the winter of 2012, but still below the recent peak of over 4.5 percent seen in September 2013, according to the Federal Reserve Bank of St. Louis. Under these conditions, we would expect to see existing home sales up high single digits to approximately10 percent, but this will strictly be a function of the rise in mortgage rates.
Public construction is slated to rise in the low single digits, according to the Manufacturers Alliance for Productivity and Innovation (MAPI), as ongoing improvement in state budgets is offset by constraints on federal spending. We expect continued growth in transportation spending, with a rise of about 2.2 percent as it recovers from a large pullback during the recession and the impact of Recovery Act funding tapers off. However, this could be hampered by the need for a more permanent funding solution for the Highway Trust Fund, a stopgap measure passed in July 2014 to extend funding.
View the full report at www.americas.gecapital.com/insight-and-ideas/capital-perspectives/top-industry-trends-to-watch-in-2015.
About the Author
Ned Reynolds is Director of Media Relations - Americas at GE Capital.