lev dolgachov
By Ed Avis
Predicting the future of the reprographics industry is like predicting the future of the restaurant industry – some national trends affect everybody, but most of the business is very local and depends on how that particular shop approaches the market.
Nevertheless, I’m going to try to predict how reprographics will do in 2019. I’m not on the front lines like you guys are, but I probably have a better “bird’s eye” view than most people. So here goes.
First, let’s talk about construction in 2019. Yes, I know that most APDSP shop owners don’t rely on the construction industry solely anymore. In fact, I was visiting Cushing in Chicago a few months ago, and barely could find the AEC printing area in the midst of their vast color work area. But that doesn’t change one key fact: AEC still is the defining characteristic among reprographics shops. And for some of them, the AEC market is still represents the majority of their business.
So let’s talk construction first.
Depending on which source you follow, 2019 is going to be either an amazing year for construction, a solid year, or a flat year. Nobody is predicting a down year for construction, and that’s good news for us.
One of my go-to sources for construction business is Anirban Basu, the chief economist at Associated Builders and Contractors (ABC). Basu has been pretty optimistic over the past couple of years, and his predictions for 2019 continue that trend. Though he is worried about inflation.
“U.S. economic performance has been brilliant of late,” Basu wrote in ABC’s press release about the coming year. “Sure, there has been a considerable volume of negativity regarding the propriety of tariffs, shifting immigration policy, etc., but the headline statistics make it clear that domestic economic performance is solid. Nowhere is this more evident than the U.S. labor market. As of July, there were a record-setting 6.94 million job openings in the United States, and construction unemployment reached a low of 3.6 percent in October.”
Basu cites a strong backlog of construction work – 9.9 months at the end of Q2 2018 - and solid infrastructure investment as signs that construction is strong and will continue that way in 2019.
However, low unemployment means labor costs will rise, and inflation is on the rise – construction materials prices were up 7.9 percent in October from the previous October.
“Contractors should be aware that recessions often follow within two years of peak confidence,” Basu wrote. “The average contractor is likely to be quite busy in 2019, but beyond that, the outlook is quite murky.”
Another widely respected source is Dodge Data & Analytics. That company predicts that total U.S. construction starts for 2019 will be $808 billion, basically even with the $807 billion predicted for 2018.
“Over the past three years, the expansion for the U.S. construction industry has shown deceleration in its rate of growth, a pattern that typically takes place as an expansion matures,” stated Robert A. Murray, chief economist for Dodge Data & Analytics. “After advancing 11 percent to 14 percent each year from 2012 through 2015, total construction starts climbed 7 percent in both 2016 and 2017, and a 3 percent increase is estimated for 2018. There are, of course, mounting headwinds affecting construction, namely rising interest rates and higher material costs, but for now these have been balanced by the stronger growth for the U.S. economy, some easing of bank lending standards, still healthy market fundamentals for commercial real estate, and greater state financing for school construction and enhanced federal funding for public works.”
Murray says that he expects economic growth in 2019 to slow compared to 2018, as the effects of the tax cut start to fade. Interest rates also will continue to rise. On the other hand, recently passed state and local bond measures should ensure infrastructure money is available.
“In this environment, it’s forecast that growth for construction starts will decelerate further, but not yet make the transition to the point where the overall volume of activity declines,” Murray wrote.
Finally, I always like looking at what the AIA has to say about the future. They do something called the Construction Consensus Forecast, which aggregates forecasts from a bunch of other sources. The last one they released was on August 16, at which point they predicted growth in construction of 4 percent in 2019. Not bad.
“If these projections materialize, by the end of next year the industry will have seen nine years of consecutive growth, and total spending on nonresidential buildings will be 5 percent greater—ignoring inflationary adjustments—than the last market peak of 2008,” said AIA Chief Economist Kermit Baker.
So those are the experts, people who follow this stuff every day. I can’t argue with them. But they all point out potential risks, too, so it’s good to be aware of them. If the government shutdown continues for a long time, that presumably could impact government-funded infrastructure. The tariffs might also hurt things – another economist estimated that the steel tariff adds 1 percent to the cost of a house. And if the economy overall starts riding the same roller coaster the stock market has been on, ouch!
That’s the expert information, and I think it’s all pretty good. These guys know what they’re talking about. But I have something they don’t have: regular contact with APDSP members. What do they think? Interestingly, I’ve found most of them to be rather upbeat and reporting decent business, even printing. Also, those who serve the construction industry in other ways – job site services, safety gear, trailers, comprehensive digital document management, etc. – are obviously delighted that overall construction is up. These innovators are leveraging their existing AEC relationships to get business way beyond printing. My prediction for them? Success.
It’s also been nice to talk with APDSP members who are heavy into color work, ranging from basic construction signage to elaborate fine art projects. They’re finding lots of work that traditional signmakers are not competing for, either because they already have good relationships with these clients (AEC firms), or they’re offering something that signmakers aren’t offering (fine art printing).
So I’m going to leave it there. Yes, there are members who are suffering, but many fewer than five or ten years ago. If you survived the recession, you probably did something right, and that’s paying off today. The economy is humming along, and that’s a beautiful thing for the reprographics business.