Investment uncertainty due to the recent escalation of the US trade war with China

 

Following weak growth in 2017, construction growth in the US accelerated in 2018, owed in part to corporate tax cuts and increased infrastructure investment by state and local governments. As a result, the country’s construction industry grew by 2.2% in real terms in 2018, compared to 0.4% in 2017. 

 

However, according to GlobalData's latest report, Construction in the US - Key Trends and Opportunities to 2023, growth is projected to decelerate this year to 0.5% in 2019, largely due to a decline in residential investment and heightened policy uncertainty from the recent escalation of the US trade war with China, which is weighing on business sentiment and holding back investment in major construction projects.

 

On 1st August, President Donald Trump announced that he would impose a new 10% tariff on a further US$300 billion of imported Chinese goods, ranging from clothes to smartphones, marking a sharp escalation of the ongoing trade war between the two countries. This new round of tariffs is in addition to the current tariffs of 25% on US$250 billion of Chinese imports. Already, construction companies across the country are shifting supply chains and delaying capital expenditure as a result of the previous US tariff increases on Chinese products and foreign metals. This latest announcement of tariffs on Chinese imports, together with the effects of previous tariffs, will further undermine business confidence, and likely lead to weaker construction growth.

 

Growth is expected to recover to a compound annual growth rate (CAGR) of 1.1% over the remainder of the forecast period, supported by rising investments in infrastructure and energy and utilities projects.

 

GlobalData expects the residential construction market to contract by 2.3% in 2019, before recovering to an annual average of 4.4% over the remainder of the forecast period. Despite falling mortgage rates, a solid job market, and a rising demand for mixed-use properties that is still supporting the housing market, expensive land, a lack of skilled labor and rising material prices (brought about by ongoing trade dispute between the US and China) are adding pressure to home prices and causing delays in home construction, as developers’ incentive to build affordable houses is being reduced.

 

GlobalData expects the forecasts period growth in the commercial construction market will decelerate to an annual average of 3.3% over the forecast period, down from 13% during the review period. In recent years, the growth of retail buildings construction has eased, owning in large part to the changing way US consumers are now shopping online through e-commerce giants such as Amazon and eBay. At the same time, slower economic growth and the effects of the increasing uncertainty generated by the recent escalation of the US trade war with China is further undermining consumer and business confidence.

 

The total construction project pipeline in the US - as tracked by GlobalData, and including all mega projects with a value above US$25 million - stands at US$852.2 billion. The pipeline, which includes all projects from pre-planning to execution, is relatively skewed towards late stage projects, with 58.7% of the pipeline value being in projects in the pre-execution and execution stages as of October 2019.