Skip to content
Industry News / Market Forecast

May 26, 2021

Dodge Forecasts Very Strong Economy; Growth in Design and Construction Sectors May Lag

Dodge Forecasts Very Strong Economy; Growth in Design and Construction Sectors May Lag

In his semi-annual economic forecast this week, Dodge Data & Analytics Chief Economist Richard Branch expects to see strong growth in the overall U.S. economy through the end of 2022 but predicts slower growth in the construction sector.

Branch said, at its current growth trajectory, the U.S. economy will be back to its pre-pandemic level by mid-summer. The fiscal stimulus package passed in March has unleashed “a near tidal wave of consumer spending and economic growth,” and he forecasts that the GDP will grow 5.8 percent in 2021 and 5.2 percent in 2022. If that happens, it would be the two strongest economic performances in consecutive years since the early 1950s.

The Design and Construction sector is in for a turbulent period, he said, with some sectors doing well and others lagging. One downside risk affecting much of the sector is the rapid rise in the cost of building materials. Branch reported that the Producer Price Index for construction materials is up 24 percent year-over-year and said anecdotal evidence suggests prices won’t be coming down anytime soon.

Looking at specific market sectors, Branch highlighted the “torrid” performance of the single-family residential sector over the past year. He anticipates that the sector will have its best year since 2006, but added that the materials price rise, material shortages, and rising home prices could dampen the market in 2022.

In both single family and multifamily, activity is stronger further away from the city centers. Branch said this move to suburban and rural counties will have a knock-on effect for commercial and institutional construction in these areas over the coming years.

Retail construction will “remain low for the foreseeable future,” he said. At the same time, the warehouse market will continue to hit year-over-year record levels of growth through at least the end of 2022.

Branch projected a “very slow trajectory in the hotel market” with sector unable to regain its 2019 activity levels for at least the next five years.

The office market will “continue to underwhelm as demand for space remains uncertain.” One bright spot in the sector is renovations. Historically, office renovations have accounted for about 33 percent of activity, but in the first quarter it was 46 percent. Branch doesn’t expect that level to hold, but he said renovations could account for about 36-38 percent of office activity over the next two years.

Data centers will continue to perform strongly.

Given the materials shortages, Branch said manufacturing construction would be expected to climb, but the sector is hampered by a severe lack of skilled labor. Until manufacturers can attract and train workers, activity in the sector will be suppressed.

Public construction will get a significant boost from the stimulus and Branch anticipates a 7 percent jump in the sector in 2022. Education is slated to get a lot of funding, both from the stimulus and numerous local bond offerings, but he cautions that over the long term the sector faces a significant demographic squeeze.

Health care, on the other hand, enjoys very supportive demographic trends, and Branch forecasts 7 percent growth in 2021 and 8 percent growth in 2022. Hospitals will attract more activity than clinics and nursing homes, with the emphasis on inpatient services.

Branch said he is confident that Congress will pass an infrastructure package this year. He expects it to be smaller than President Biden’s American Jobs Plan and closer to the Senate Republicans’ proposal. Using what he called a middle-of-the-road assumption on the final size of the package, Branch said 2022 looks good for roads, highways, and bridges—as well as water and wastewater projects—and the out years look even better.  

Finally, the energy sector will continue to expand due to the continued growth in utility scale wind and solar projects.

All comments to blog posts will be moderated by ACEC staff.

Engineering Influence Podcast Ad

May 26, 2021



Scroll To Top