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US construction

While the most recent data on the US economy over the past two months has been mixed, this is most likely due to severe winter weather and does not necessarily counteract the positive trend.

Indeed, the acceleration in US GDP growth that began in the third quarter of 2013 continued in the fourth quarter, and sets the stage for a stronger 2014. The real GDP growth of +3.2% (annual rate) occurred despite a large drag from the federal government sequester and partial shutdown.

However, there is agreement on the federal government debt ceiling and on a budget that avoids further spending sequestration, not to mention the potential for government shutdowns. As such, fiscal policy, and the uncertainty around that policy, will not be the drag on GDP growth that it has been in recent years.

The better news for construction is that business fixed investment growth is expected to increase from +2.6% in 2013 to +5.0% in 2014, due to both stronger equipment spending and an eventual pickup in non-residential construction.

The residential sector is already in recovery mode, although the level of activity is not yet at typical levels. Housing starts improved to 928,000 in 2013 and are expected to reach 1.1 million in 2014, 1.5 million in 2015 and 1.6 million in 2016.

Housing starts could remain around 1.6 million for several years, but the current level could be higher. There is demand in many cities, but banks still perceive housing as risky, and developers cannot secure the credit to build.