The construction industry has strongly rebounded over recent years. Tight credit markets, lower consumer spending and high unemployment slowed growth until recently as demand for new commercial and residential space has been low.
Commercial construction typically lags behind the overall economy by one to two years due to the length of contracts. As economic activity has increased, contractors’ backlogs have filled and demand for new construction has picked up. As a result, many construction outfits are now able to raise prices – slowly leading to increasing profit margins.
Road and highway construction is also expected to increase due to the need to repair, expand and rebuild existing infrastructure. Together with growing congestion caused by urban sprawl, these factors will force authorities to spend. Demand is expected to remain strong over the coming years in all areas as a result of decreasing office vacancy rates, increased infrastructure spending and greater new home starts.
The restaurant industry has grown over the past several years thanks to declining unemployment and improved consumer confidence, resulting in greater spending on sit-down meals. While profit margins remains slim, costs have been kept under control resulting in growth through volume.
Full-service chain restaurants operate in competition against independent restaurants, fast-food chains and other establishments offering meals to eat in or take away. The trend over recent years has been greater convenience at a lower cost, which has hurt sit-down meals restaurants the most. In response, full-service restaurants have invested in technology to cut costs and redesigned layouts. Fast casual restaurants that serve high-quality food at reasonable prices will keep increasing competitive pressures and force profit margins to remain slim into the foreseeable future.
The healthcare industry is comprised of many players; however, it is driven by primary care doctors and hospitals. The aging population has increased demand for healthcare services in recent years with no expectation of this trend easing.
Chronic illnesses are disproportionately prevalent in older adults and rising significantly due to demographic shifts. Additionally, the passage of the Patient Protection and Affordable Care Act now requires all individuals to obtain healthcare coverage. As a result of rising coverage, demand for primary care has grown substantially. But despite this growth, the number of primary care doctors has not expanded enough to keep pace with demand.
The hospital segment is consolidating and organizations are seeking the most skilled and specialized healthcare professionals. Consequently, labor costs in this industry are high and hospitals are increasingly facing nurse and physician shortages. Home healthcare and remote diagnosis of routine minor illnesses are becoming more common.
The real estate industry is closely aligned with fluctuations in the residential and commercial real estate markets. Industry revenue is directly correlated with property prices and real estate transaction volumes because pay is commission based. The residential market represents more than two-thirds of industry revenue, making the industry especially sensitive to housing prices and existing home sales.
Increasing disposable income and low interest rates have helped increase home affordability and bolstered demand. Additionally, rising house prices lead the way for steady gains in industry revenue. However, anticipated gains in employment will force the Federal Reserve to raise interest rates over the next few years. Higher interest rates will increase borrowing costs and reduce demand for homeownership. Both factors have the potential to limit industry growth in the coming years.