Economist Talks About What's in Store for the
Future of the Construction Market
May 4, 2010
Is the construction industry ready for a rebound? That was question
posed to economists today during a market insights webcast organized
by Reed Construction Data, the Associated General Contractors of
America (AGC) and the American Institute of Architects. While there
are definitely rough patches ahead, overall, economists had a positive
perspective on the future.
"I'm delighted to have some good economic news, if not for
non-residential construction," said Ken Simonson, chief economist
for AGC. He said real GDP has grown for the third straight quarter
by 3.2 percent.
"This would have been a much bigger figure except there were
declines in private non-residential, residential and public construction
spending," says Simonson. "I am concerned that those trends
will continue for quite a while longer. It's not all bad news, though."
Simonson said there have been broad improvements in the overall
economy outside of investment and structures.
"Yesterday the Bureau of Economic Analysis told us that personal
income increased again in March by 3/10 of a percent and personal
consumption expenditures increased by 6/10 a percent. These are
important indicators for future construction demand, but right now
non-residential is still seeing huge vacancy rates, and very low
effective rents for developer financed categories. Public construction
is burdened by the downturn that's continuing in state and local
revenues, even though the Stimulus legislation has provided some
Looking at the Stimulus bill, Simonson estimated $135 billion in
spending from the law. "That sounds like it should be enough
to boost construction spending, but it has been rather slow, other
than the highway portion," he said.
Some tax changes have also been helpful in boosting spending. "In
November, for example, the homebuyer tax credit was extended through
April. Another provision that was extended and may also be expanded
further was the Build America Bonds. These enabled states to reduce
their costs of borrowing and in some cases increase the amount of
construction they have done," Simonson said.
Simonson posed the question: Has the Stimulus been enough to keep
construction spending up? His answer: No.
"Total construction spending through February dropped 13 percent
of seasonally adjusted annual rate. Of that, private non-res construction
fell by 24 percent and public construction by 5 percent. In spite
of the Stimulus coming through it shows how big a drag spending
cuts have been," said Simonson.
On the other hand, he pointed out that private residential construction
finally leveled off last spring.
"It's now up on a year over year basis for the first time in
four years," said Simonson who explained that residential can
be looked at in three parts.
"The new single family is on an upturn with ten straight months
of increases in spending; even improvements to existing single family,
which has bobbed up and down, are solidly in the plus territory;
new multi-family investments are still tumbling at a 52 percent
rate," said Simonson, who added, "The trend is strongly
upward for single family and down for multi family."
Looking at non residential, this is mostly a "big negative."
Combining public and private non residential, the total decline
from February 2009 to 2010 was 16 percent.
In terms of construction employment, jobs have been lost almost
everywhere as only North Dakota and Arkansas added jobs in the past
year, and those were less than 1 percent-100 jobs in North Dakota
and 300 in Arkansas. The rest of the country lost anywhere from
3 percent to 11 percent of its construction employment.
Looking ahead, Simonson said building construction will have another
bad year. Non-residential spending will be about 0 to -5 percent;
residential will be up 5 to 10 percent, though multi-family will
stay down; and total construction spending is expected to be between
-4 and +2 percent.
For 2011, though, Simonson expects construction spending will be
positive for the first time in five years.
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