Economist Discusses Non-Residential Construction
Business Conditions and When to Expect Improvement
February 2, 2010
"The national economic recovery seems to have begun, but we
have not yet seen any evidence of that on the non-residential side.
So question is: when will the upturn hit the construction industry
and how can we track the upturn as it begins to approach?"
That was the question asked by Kermit Baker, the American Institute
of Architects' chief economist, during a recent economic forecast
he titled, "Economic Recovery: Under Construction Timing of
a Design and Construction Rebound." In his discussion Baker
covered three topics: where the industry stands at present; business
conditions at architectural firms; and when we can expect to see
conditions in non-residential construction improve.
Baker echoed many of the same sentiments of fellow economist Ken
Simonson with the Associated General Contractors of America (CLICK
HERE for related article). Beginning with employment situation,
Baker said in the broader economy job losses are occurring, though
slower than they were a year ago.
At the beginning of 2009 we were losing close to 700,000 payroll
positions/month nationally; that dropped to under 100,000 month
[by the end of] 2009," said Baker. "Within the construction
industry losses are also slowing. We were losing about 100,000 or
more a year ago and that was down to about 50,000 a month by the
end of the year. Losses in construction sector are slowing at a
slower pace than losses in the broader economy and the construction
industry is one of the few sectors in our economy that's still in
recession. As such the unemployment rate in construction is broader
than it is in he overall economy."
When it comes to architectural firms, Baker said that they, too,
are seeing declining payrolls, having lost about 40,000 positions
since their high in mid-2008.
"That works out to more than 17 percent of all employees at
all architectural firms," said Baker, adding that it does not
include part time workers, cut backs, salary freezes, etc. "Declines
have been slowing so there are encouraging signs we may be near
the bottom in terms of losses throughout the profession."
Baker noted that the AIA's Architectural Billings Index, which tracks
inquiries for new projects, continues to be strong but that interest
is not converting into new levels or new projects.
"It indicates that architectural firms are expanding their
search for projects and as a result of that we are seeing more bidders
on each project and more inquiries, but they are not resulting in
more projects," said Baker, adding that the residential index
is the most encouraging. "Our sense is residential will be
the first to recover."
Baker also discussed business conditions at architectural firms
and said they are entering the year coping with a very sharp downturn
"Almost 80 percent of firms estimate seeing losses for 2009.
Looking at 2010, many firms are expecting continuing challenging
business conditions for the year ahead with 45 percent of firms
are projecting further revenue declines this year. Fewer than 30
percent are projecting revenue growth," said Baker.
In discussing the timing of the downturn and when can expect to
see better conditions, Baker said that non-residential construction
is typically the last major sector in our economy to recover because
businesses don't want to invest in new facilities until they are
sure that an economic expansion is underway and can be sustained.
"The current trend does not seem destined to move into a recovery
phase any time soon. The way we track this information is by seeing
the progress of key indicators in the economy and trying to develop
some timing relationships to see when the cycle is likely to end
and move back into expansion phase," said Baker, who added
"Before we see any major movement in the economy we almost
always see a major movement in the stock market prices. After we
see a change in the direction of stock prices, often that shows
up with a change in gross domestic product and as things improve
the economy will hit bottom and we'll see growth coming out of that."
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