5 Construction Stocks Likely To Stand Tall In Q2 Earnings

Upbeat expectations for the construction sector’s second-quarter 2018 performance are backed by overall economic growth, solid construction spending, strong labor market, higher demand, tighter inventories and rising home prices. The estimate picture also reflects the bullishness. After all, 11 of the 16 Zacks sectors are likely to register double-digit earnings growth this earnings season, construction being one.

After the 2% economic growth in the January-March quarter, the world’s largest economy is expected to have advanced 3.9% in the second quarter of 2018, per the latest Atlanta Fed’s real-time Q2 GDP growth estimate. This solid projection holds particularly true as one of the nation’s key economic drivers, construction activity, is gradually picking up along with a declining unemployment rate (4% in June 2018).

However, higher material costs and a rising rate environment, which drove interest/mortgage rates, have troubled the sector in the first half. If that wasn't enough, Trump’s steel and aluminum import tariffs raised further apprehensions. Much like the broader market that is also battling volatility this year, the construction sector is now in the bear territory, having lost 7.8% so far this year.

Solid Construction Spending, High Demand Back Sector

Spending on construction rose 4.3% year over year in the first five months of 2018, per the latest U.S. Census Bureau report. Particularly, spending on government projects showed a remarkable 4.4% improvement while private spending rose 4.2% during the period. Notably, spending on construction projects across the United States increased 4.5% in May to an all-time high of $1.31 trillion. Importantly, spending on public works was stronger than private-sector projects in May.

Meanwhile, apart from tariffs on lumber, the U.S. Government’s recent move of imposing tariff on imported steel and aluminum stirred concerns among investors about the construction sector. According to an Associated Builders and Contractors (“ABC”) analysis of information provided by the U.S. Bureau of Labor Statistics, June construction material prices increased 9.6% year over year.

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