Vindication! The credit-ratings agency reiterates what I’ve been saying for two years.
In my last column, I wrote how consumer confidence in the face of recent stock market swings bodes well for the U.S. economy. Now, Moody’s Investor Service has also spoken – and agrees. Moody’s analyses of opinions on everything from global outlooks to carefully vetted, deep-dive research on individual companies produce a ratings system that’s the gold standard of the global financial industry. The firm’s recently released forecast for the global construction economy confirms what the average consumer already knows: The economy continues to show unfaltering signs of strength, and that strength is evident throughout the world.
Some might think economic conditions in other countries don’t matter to us, but that’s not so. Think of the foreign manufacturers building large factories and distribution facilities throughout the U.S., projects that drive concrete production at the most local of levels. Those projects only happen when those companies are enjoying prosperity in their home countries and export markets. In addition, bellwether companies like Caterpillar and the many other construction machinery and transportation equipment manufacturers all benefit from the strong export environment, trade tariffs notwithstanding.
Moody’s reported last month that robust economic conditions, elevated confidence levels, and low interest rates will support further expansion, particularly in Asia Pacific and North America; and underpin a stable outlook into 2019. The report, titled “Construction — Global: Robust economies, higher confidence, and low interest rates keep outlook stable,” sounds a lot like what I’ve been saying for the last two years.
Moody’s concludes that continued strong economic growth in a number of major developed and emerging markets, coupled with attractive financing conditions on the back of very low interest rates, will boost average global construction industry revenues by 5% into 2019. An average book-to-bill ratio for the sector forecast at 1.2x also reflects the current healthy industry conditions and suggests sustained revenue growth during 2019 and beyond.Asia Pacific and North America will see the greatest revenue surges at 10% and 6%, respectively. China’s will advance by 8% or more as demand remains strong, mainly in the country’s transportation infrastructure segment. In the U.S. and Canada, still-healthy residential activity and a pickup in commercial construction activity will drive volumes. Europe’s healthy order books will underpin mid-single-digit revenue growth in the region, bolstered by improved construction-industry confidence and budgetary conditions in several countries, which bode well for residential and public infrastructure spending.
Asia Pacific and North America will see the greatest revenue surges at 10% and 6%, respectively. China’s will advance by 8% or more as demand remains strong, mainly in the country’s transportation infrastructure segment. In the U.S. and Canada, still-healthy residential activity and a pickup in commercial construction activity will drive volumes. Europe’s healthy order books will underpin mid-single-digit revenue growth in the region, bolstered by improved construction-industry confidence and budgetary conditions in several countries, which bode well for residential and public infrastructure spending.
But softness does exist in some regions. In the U.K., political and economic uncertainty as well as fragile business confidence due to the ongoing Brexit negotiations will stifle construction output. Latin America’s prospects also remain gloomy, with construction companies likely to struggle because of weaker-than-expected growth in some major countries, stagnant investment levels (particularly in Brazil), political uncertainties, shrinking order backlogs, and constrained liquidity.
And, finally, higher commodity prices might accelerate investment and support construction activity in the oil-and-gas and mining sectors, mainly benefitting U.S., Australia, Canada, and Latin America-based construction companies.
In my last column, I said I remain upbeat about the U.S. construction economy despite a pause in growth in our housing sector. Affordability, labor constraints, and land development are hurdles that must be overcome, and I predict they will be. When we couple improving conditions in the new housing market with further gains in all other construction sectors, I have to tip my hat to Moody’s, and acknowledge they see the future the same way I do.
About the Author
Pierre G. Villere serves as president and senior managing partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction materials industry that specializes in mergers & acquisitions. He has a career spanning almost five decades, and volunteers his time to educating the industry as a regular columnist in publications and through presentations at numerous industry events. Contact Pierre via email at pvillere@allenvillere.com. Follow him on Twitter – @allenvillere.