Fitch: Strong Construction Spending Growth Next Year Fueled by Private Sector

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Fitch Ratings recently released its annual outlook report for the US building materials industry and projects strong growth in overall construction spending during 2015, but mostly from the private sector.

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Private materials spending should help boost construction spending by 7%, Fitch said.

“Public construction spending remains constrained and is expected to increase only slightly next year,” the researchers said.

Fitch expects revenue growth to average 8% to 10% for building materials’ companies – including steel, aluminum, copper and other construction metals – in 2015, driven by organic growth as well as acquisitions completed this year. The construction sector is projected to grow its profit margins and to take on lower debt levels. This, Fitch says, should lead to modest improvement in credit metrics.

“The modest recovery in the US construction market and our expectation of a moderate improvement in credit metrics are generally factored into the current ratings and outlooks,” said Robert Rulla, a director at Fitch.

Fitch’s predictions are in line with other forecasts we’ve reported recently in saying that private construction will drive growth next year, while public projects, mostly heavy and highway construction, will continue to lag. Globest.com noted that the boom in apartment c0nstruction is coming from rising rents and the ability to charge more for housing in most American cities.

Government construction spending was actually up in October, according to the Census Bureau, but the sector’s strength came from state local projects such as school district spending. With federal construction remaining in negative growth it will be hard to count on growth from the sector next year.

Lower metals production and transportation costs thanks to low-priced oil will certainly help the market in early 2015, too, but the fundamental strength in real estate and housing will be the key market driver.

Fitch had a busy week in the global construction market, as it also placed Brazilian heavy construction companies on a negative watch thanks to contracts with state-owned oil company, Petrobras.

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