Economists Agree, the Recession May be Over, But We're Still Not Fully Recovered
June 8, 2011
Though the overall economy has been out of recession for two years this month it does not mean all segments are fully recovered. That was the sentiment of three construction industry economists during a forecast presentation today. Economists from the Associated Builders and Contractors (ABC), the National Association of Homebuilders (NAHB) and the American Institute of Architects (AIA) talked about what the construction industry is likely to see in the coming months.
Anirban Basu, chief economist for the ABC, began by discussing commercial industry construction, explaining that while we are in period of economic recovery that started in June 2009, “that does not mean all portions of the economy are out of the recession or that the economy is booming,” Basu said. “One could argue that construction in many ways has led the downturn. No segment of the economy was as heavily impacted by the economic downturn that began in December 2007 as construction.”
Basu explained that the peak for non-residential construction was in October 2008 and that non-residential construction typically lags the overall economic cycle by 10-24 months and that’s what has happened here.
“The recession begins in December 2007, but it’s not until [October 2008] that non-residential peaks and then past that point decline is profound.”
Now, looking at the past few months, he said there have been signs of stability, but not recovery.
Speaking of the non-residential market, he said over the past 12 months four segments experienced growth: construction and development; healthcare; power and communication. The biggest declines were in areas such as lodging, offices and education.
As far as national construction employment, Basu does not expect significant growth in the months ahead. Another challenge is that the costs to provide construction services have increased, as material prices are rising, squeezing profit margins.
He added that ABC’s member companies’ construction backlog, an indicator of the amount of work under contract that their contractors have “shows the industry is stabilizing.”
David Crowe, chief economist with the NAHB, provided a residential forecast. He said residential construction typically leads the economy out of a recession, but it’s performed worse [than residential] in this period. He said growth has not been anywhere near what would typically be expected.
Still, Crowe gave some reasons for optimism. Low mortgage rates, as an example, are not likely to rise significantly. He also said house prices have mostly returned to normal levels.
“Low house prices and low interest rates mean affordability is very good,” Crowe said.
He added that there is also a very low inventory of new homes.
Looking ahead, he expects we will begin to see some improvement.
“By the end of 2012 I see us back to where we were in mid-2008—not great, but decent,” said Crowe.
Kermit Baker, chief economist with the AIA, gave an overview of some of what he’s seeing within architectural firms. He began by speaking of some construction-related trends. He agreed with the other economists, saying that economic recovery is modestly resuming, though we may be nearing another point of softening.
He also spoke of the job market, which he said is very important for the health of the economy.
“Even though there has been some growth … the construction industry numbers are still very modest, some positive, some negative,” said Baker. He added that whatever recovery the broader economy has seen, it’s still not reached the construction industry, noting that there is not much need for commercial buildings, institutional facilities, new homes, etc.
Speaking of the AIA’s architectural billings index, Baker said that the commercial/industrial sector had been the strongest in recent months and it seemed fully on its way to recovery, though it dipped some in April. He added that on the residential side multi-family has been much stronger than single family.
He also shared some information from the AIA’s consensus forecast, noting that the most recent numbers will be available soon.
“At the end of last year our panel was calling for a moderate decline in 2011 and by 2012 we should see more of what typically comes with a full-blown recovery,” said Baker. He also added that when the new report is released he expects to see growth for 2012.
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