Non-Residential Construction to Remain Down
in 2010; Single-Family Residential Will Continue to Recover
February 1, 2010
While economists are predicting the single-family residential construction
market will continue to recover this year, the non-residential segment
is going to have to stick it out a bit longer, as improvements are
not likely in 2010. Ken Simonson, chief economist for the Associated
General Contractors of America (AGC) shared his forecast during
a recent webcast that was sponsored by the AGC, the American Institute
of Architects and Reed Construction Data.
"The economy is in a recovery now; we touched bottom mid- to
late-summer and it has been growing more slowly than usual after
a recession," said Simonson. "Growth is pretty wide spread
and I think it will continue through 2010, but it will leave construction
far behind as there has been little good news coming out about the
construction industry." Simonson said that even homebuilding,
which has been on a generally upward path, saw a set back in December.
"Overall, the construction industry lost jobs in every state
between December 2008 and 2009 and for the rest of the year I am
afraid things will not get much better on the non-residential side,"
he said. "We still have sharply rising vacancy rates for offices
and retail space, sluggish occupancy for hotels
combination means none of those income-producing segments are producing
enough now to make them attractive prospects for more construction.
In addition, multi-family markets are still plagued with excess
supply coming in. Owners and banks have repossessed houses and are
currently trying to rent them out rather than putting them on the
market. Also, the availability of the first-time homebuyer tax credit
means many of those people buying homes for the first time are moving
out of rental properties. So there are rising availability and falling
demand for rental properties."
Simonson also talked some about how the stimulus bill has affected
"The biggest portion [of the stimulus] for construction has
been in the appropriated spending segment and the AGC estimates
that to be about $135 billion."
Of the stimulus provisions, Simonson says the change that may be
most beneficial to contractors is the extension of the five-year
carry-back of net-operating losses.
"Originally it only applied to small businesses for 2008 net
operating losses but now any company with a net operating loss in
2008 or 2009 can take advantage of that provision. I think that
will provide significant cash flow boost to firms that otherwise
would have to hang on until they can claim losses that exceeded
the two previous years," he said, and added, "The timing
on the stimulus money flowing I think will improve significantly
this year, but we're but not ready to say in which quarter it will
As far as construction activity over the past year, Simonson said
total construction spending was down 13 percent from November 2008
to November 2009.
"Of that, private non-residential is dropping at a 21-percent
rate. Public spending (where stimulus money shows up) was up 3 percent
and private residential had dropped very sharply in early 2009 and
now has been rising gradually. But year over year, it's still down
19 percent," said Simonson.
Taking a closer look at residential construction, Simonson pointed
out that there has been an upturn in single-family construction
over the past six months, while multi-family construction has continued
to drop steeply.
"Looking at permits and starts, I think we can expect more
of the same, with a strong rising trend for single family. For 2010
as whole, while we may have setbacks in [single family] construction
I think the single-family market will continue to
grow and multi-family will continue to shrink," said Simonson.
On the non-residential side, total private and public is down 11
percent from November 2008 to 2009. Simonson said the most positive
news from the past 12 months has been power construction, including
solar sites. "I think this will continue to perform well this
year," he said.
One bright spot Simonson pointed out is that within public construction
spending, nearly every category is either higher or close to levels
where they were a year ago and are likely to remain better than
they were in early 2009 thanks to stimulus.
When it comes to employment levels, Simonson said the construction
industry has been at "depression levels."
"The construction industry has been suffering with more than
one-fifth of all job losses even though the industry accounts for
only 1/20th of total employment," said Simonson. "In early
2009 residential construction was losing jobs at a greater rate,
but since about May bigger losses have been in non-residential,"
says Simonson. "As we move through 2010 residential construction
will turn positive and non-residential will remain negative for
most if not all of the year."
In summarizing what the construction industry can expect from 2010
Non-residential spending will be down 0 to -5 percent; single-family
residential will be up 5 to 10 percent (multi-family will be down
all year; total construction spending will be between -4 to +2 percent;
materials costs will be between 0 to +8 percent; and labor costs
will be up 3 percent or less.
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