Economist Finds Some Positive Signs for 2011
March 8, 2011

This year may just bring some much-needed good news for the multi-family housing market, as Ken Simonson, chief economist for the Associated General Contractors of America, predicts the segment to grow.

“This should be a good year for multi-family,” said Simonson during a recent webinar. “It hasn’t shown up yet in construction spending figures, but I think we’ll have a sharp upturn.”

Speaking of the single-family market he added, “I think by the end of the year the record-low inventory of new homes will need replenishing and so there should be some pick up there.”

According to Simonson, there have been several other signs that the economy is slowly starting to improve.

“Real gross domestic product has been growing for about two years now,” he said. Other measures, he pointed out, such as personal income, consumer spending and private employment, have also been rising.

“Private employment has risen for ten straight months,” said Simonson.

On the other hand, Simonson said state and local spending are slowing down the economy.

“[This is] not all bad as we do need budgets aligned with revenue, and as a result I think the economy will be stronger two years from now once those adjustments take place,” he said. At this time, he said cutbacks may be a problem for state and local construction.

Simonson said the best news for construction recently has been from federal work, which is coming through three sources: the recovery act, military base realignment and reconstruction work around New Orleans and the Gulf Coast.

“Clearly, federal spending is pretty much at max now and is likely to drop back late this year or early next year,” said Simonson.

Looking at construction spending, Simonson explained that private residential spending has been dropping since 2006. While it’s begun to pick up over the last few months it’s still down by 8 percent between January 2010 and January 2011.

Private non-residential, which he says has seen a sharp decline since 2008, is down 13 percent over the past 12 months.

As far as non-residential segment categories, some have done well (highway/street, power, transportation and water supply) while others remain down. Talking about the institutional category, Simonson said, “I’ve been hearing about a lot of hospital projects starting up in the last few months or at least are in the fundraising/design/permit stage and I think this category will do well in 2011, though it’s not showing it yet.” He added that the biggest institutional category is pre-K through 12.

Construction spending for developer-financed projects continues to decline.

“Even though private employment has been rising for ten months, so many companies have started spaces where they have downsized they won’t need to build for quite a while,” said Simonson.

Talking about the economic impact on construction employment, Simonson said in the last 12 months it’s down 2.3 percent, whereas private employment has risen. Specifically, building and specialty trade contractors, both non-residential and residential, have also continued to lose jobs.

As for his overall forecast for 2011, Simonson expects to see a small increase for the non-residential market.

“Residential should do better thanks to the strong bounce-back in multi-family,” he said.

Total construction spending should be up 3 to 7 percent, materials costs also up, 3 to 8 percent and labor costs should stay very low, 2.5 percent or less.

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