Economists at Outlook Conference Predict Chances of Second Recession; No Improvement in Construction in 2012
October 20, 2011

By Sahely Mukerji,

Robert Murray, vice president of Economic Affairs at McGraw-Hill Construction in New York City, says one of the keys to avoid a second recession is job growth.

The construction industry will remain flat in 2012, with a GDP growth of 1.6 percent this year and 2 percent next year, said Robert Murray, vice president of economic affairs for McGraw-Hill Construction (MHC), during the 2012 Dodge Construction Outlook at MHC's 73rd annual Outlook Executive Conference. The Conference took place at the Omni Shoreham in Washington D.C. on October 19.

"Nonresidential building had a steep drop in 2009, and hasn't shown a lot of movement," Murray said, "but the expectation is that if the economy can avoid another recession, it might grow. The one bright spot for the nonresidential sector is multifamily housing. … The corner is being turned, but in a very slow and hesitant manner."

The upward trend of multifamily housing could be attributed to the growing number of renters. "The number of renters is growing by 1.5 million per year, and the number of owners is falling by half a million per year," said Kermit Baker, chief economist for the American Institute of Architects in Washington, D.C. "There is a negative attitude toward home ownership: it's constraining, and you can lose money."

Housing starts are up about 10 percent, Baker said. "We've seen a dramatic scaling back in production, but not much on the consumer side. Not seeing much improvement in the national numbers of housing recovery. We're several years away from pre-recession numbers," he said.

The overall level of construction starts in 2012 is expected to be $412 billion, following the 4-percent decline to $410 billion predicted for 2011, Murray said. "Will the economy be able to avoid a double-dip recession?" he asked.

"I give 40 percent chance to another recession," said Beth Ann Bovino, deputy chief economist at Standard & Poor's in New York.

The ENR Construction Industry Confidence Index showed in the first quarter of this year that the industry confidence from the business perspective was at 71; in the second quarter, it was 53; and by last month it was 38, said Harvey Bernstein, vice president of Industry Insights & Alliance, MHC. A score of 50 is stable for the construction industry. "Design firms are more positive than other industry players; contractors are most concerned with present market," he said.

"The 2011 'Summer of Deflating Confidence' leads into lackluster year end and into a 'Do Nothing' presidential election year," said Julian A.J. Anderson, president of Rider Levett Bucknall.

Below are highlights from the Dodge Construction Outlook:

  • Multifamily housing will rise 18 percent in dollars and 17 percent in units, continuing its moderate, upward trend.
  • Commercial building will grow 8 percent. Warehouses and hotels will see the largest percentage increases, but improvement for offices and stores will be modest.
  • The institutional building market will slip an additional 2 percent in 2012, after falling 15 percent in 2011. The tough fiscal environment for states and localities will continue to dampen school construction, and the uncertain economic environment will limit growth in healthcare facilities.
  • Manufacturing buildings will increase 4 percent, following the 35 percent gain in 2011, as the low value of the U.S. dollar continues to support export growth.
  • Single-family housing in 2012 will improve 10 percent in dollars, corresponding to a 7 percent increase in the number of units to 435,000 (McGraw-Hill Construction Dodge basis). This is still a low amount, as the excess supply of homes due to foreclosures continues to depress the market.

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