Webinar Asks: Have We Hit Bottom?
The Associated General Contractors (AGC) of America and Reed Construction
Data co-hosted a webinar today that asked the question: "Have
We Hit Bottom?"
According to Jim Haughey, chief economist of Reed Construction
Data, "Total construction spending is likely to hit bottom
before the end of this year." For the nonresidential sector
specifically, starts are expected to reach a bottom later in the
fall of this year.
Haughey offered three landmarks to watch for to know when the economy
has reached its bottom. First is the consumer confidence index.
"This has been a major contributor as to how quickly this
recession has developed," he says. He says this marker needs
to rise to about 70 and stay there for several months, and that's
not likely to occur until "well into the year."
U.S. Nonresidential Construction Spending
Outlook ($ millions, annual rate)
|Source: 2009 Market Insights Webcast, Reed
The second point is the inventory/sales ratio; he says this factor
will have to decline for several months back down to around 1.3
before factories will recall workers, and that's expected to occur
in the summer.
The third item is that we'll "have to see some improvement
in the credit market."
During the question and answer session, one listener asked for
suggestions of things company owners can do to whether the storm.
Haughey suggested first that owners "recognize that we may
have the bottom in sight but we're not there yet." As he noted,
there's "a good part of a year ahead." Haughey further
added, "Be sure that you can get there; if you can't get there
now's the time to get out. Remember, changes in who the market leaders
are usually take place at the bottom of a recession-prepare to take
advantage when it's over."
Haughey also reminded listeners, "There's still a lot of business
stretch your market concept a little bit."
What does this all mean for commercial construction?
Change in Producer Prices for Construction
vs. Consumer Prices, 2003 -2008
(December 2003 = 100)
|Source: BLS, 2009 Market Insights Webcast
According to Haughey, "The commercial space surplus started
to grow only in the last 3 or 4 months and that's going to expand
through 2009." As he explained, nonresidential construction
will begin to slow in many markets where commercial buildings now
are cheaper to buy than to build. This is "not true in every
market but probably will be in a few months," he said.
Nonresidential construction increased 12.1 percent last year, however,
"we expect this year and next year to be barely positive,"
Haughey said, predicting a mere 1.4-percent in construction spending
Commercial starts are off about 10 percent, he commented, while
office and retail construction both saw about a 30-percent drop
this year. However, there has been a big surge in sports arenas
(160.7 percent) keeping things afloat. As Haughey pointed out, the
money for these multi-million dollar projects typically was raised
over the course of several good years of economic times. He further
expects to see healthcare and educational buildings-especially college
buildings that rely on donor contributions-to hold up a little better
than other areas of commercial spending.
Ken Simonson, chief economist for AGC, said that he was somewhat
more optimistic than Haughey on the housing market; he noted that
realtors have reported a slight increase in December in home sales-mostly
foreclosures and related homes, but inventory that still would have
been clogging up the market if not sold. Simonson said he believes
this year we're really going to see an upturn in housing because
more people will be able to afford homes due to lower interest rates
and even factors such as lower gas prices that put more money back
in taxpayers pockets.
While single-family residential may see improvements, for multi-family
construction, "I don't see any improvement before 2010 at best,"
Looking ahead at 2010, Simonson noted, "My guess is that residential
will continue to grow probably [in the] high single digits; nonresidential,
unfortunately, will probably continue to shrink. While we may start
to see selective retail construction in 2010, following residential
construction, and remodeling
most other private nonresidential
construction will lag the economic recovery."
Spending Outlook for 2009
||-2 to 2%
||-3 to -9%
||-1 to -7%
|Source: Census Bureau; Ken
Regionally, Haughey explained that that the recession is deepest
in those states where the housing collapse has been most severe.
However, one part of the country-the Gulf Coast-was expanding as
of November. He pointed to Texas as a good market. He noted, on
the other hand, that recession has barely gotten started in Northeast,
since "this part of the country always feels the slowdown late
because of the industry here" and predicted that would be one
of the last areas to see improving construction.
When one listener asked where to refocus construction efforts,
Simonson said, "I would pick out very small spots, those around
military bases that are getting realignment money."
Haughey added, "College towns always hold up better,"
supporting his comment that educational building would stay strong
by further explaining that with students "once they're there
However, Simonson said, "by and large this is a national slowdown,"
meaning the entire country is feeling the impact.
Simonson also addressed labor costs. He pointed out that the construction
has seen large drops in employment in the last 12 months (CLICK
HERE for related story), yet average hourly earnings rose rapidly.
"That's because in part there were union contracts signed at
the beginning of the year
that locked in rates," he
explained. He also noted that the construction work that has continued
largely has used specialized workers who are likewise more highly
Unemployment is expected to peak at 9 percent sometime next year,
according to Haughey.
"It's going to be several more years of a somewhat sluggish
economy," Haughey said.
Need more info and analysis about the issues?
HERE to subscribe to USGlass magazine.