Construction Forecast Conference Addresses Increases
in Commercial Construction
Reed Construction Data hosted its Eleventh Annual Construction Forecast Conference,
October 10-11, at the National Press Club in Washington, D.C.
During his presentation on the U.S. construction economic forecast,
Jim Haughey, chief economist for Reed, noted that although residential
construction has slowed, the nonresidential boom continues. In commercial
construction, Haughey said that project starts have increased progressively
since last spring. He noted that starts from January-August 2006
have been 9.5 percent higher than for the same period in 2005. He
added that construction spending was 15.8 percent higher in July
2006 than a year earlier.
"Construction spending has been [higher] than construction
starts," said Haughey.
The nonresidential starts forecast Haughey offered shows the highest
overall growth in 2006:
· 2005 - 9.4 percent;
· 2006 - 11.8 percent;
· 2007 - 6.7 percent; and
· 2008 - 4.4 percent.
The speakers broke the commercial construction market down further
into a few specific sectors where they expect some growth, notably:
lodging, manufacturing, office and healthcare construction.
"Lodging is a hot market this year and office is the lagging
market," Haughey began.
Ken Simonson, the chief economist of the Association of General
Contractors of America who offered the general contractor's business
outlook, said that that he still sees 6-12 months of strong growth
in lodging construction.
Haughey continued, "Construction in the office market probably
won't peak for two years."
According to Joshua Scoville, director of strategic research of
Property and Portfolio Research, who presented the outlook for future
development in commercial construction, "We're seeing office
[construction] pick up as well." He noted that compared to
apartment construction, office construction is experiencing a "slower
but still steady recovery."
He added there is still a new supply of office buildings, but that
supply never really "shut down," one reason growth hasn't
According to Haughey, construction in the healthcare sector will
soon be fueled by a surge in healthcare insurance premiums and public
Simonson said that he feels the healthcare construction is "catching
up" after years of cutting back on construction. He also said
that he sees the healthcare industry increasing construction to
"catch up" on new and changing technology.
With regards to manufacturing facilities, Haughey noted that manufacturing
capacity utilization is up near 82 percent, which he said is above
the usual threshold for a surge in capacity investment. Simonson
added that as production is strong, he still sees growth in manufacturing
plant construction. Scoville said that most warehouse construction
will be for large projects.
In addition, Haughey said the education arena is seeing growth due
to the fact that state and local tax receipts have been rising strongly
for three years following a depression level plunge in 2001-2002.
"Retail market is in fantastic shape and has been in fantastic
shape for several years," added Scoville. "We are seeing
a slight increase in construction."
He said that there is been a lot of strength in retail due to the
strong housing market. He added that in the past a great deal of
retail construction has been redevelopment, but is "today focused
more and more on new construction."
Another area Simonson added to the list is "energy-related
construction;" he noted that as more people search for alternatives
to oil, construction will increase for facilities working to develop
So where is all of this construction taking place?
According to Haughey, construction slowdown has been deepest in
the South and West, and the Rocky Mountain States are on the top
of construction growth.
"That's become the biggest growth area in the country,"
The speakers also had some comments to make on the construction
Haughey predicted that there will be 120,000 new jobs in 2007 (150,000
were added in 2006). Scoville noted modest job growth over the forecast.
He said that monthly job growth has slowed from an average of 175,000
per month at the beginning of the year to around 125,000 per month
recently. He noted that total employment growth was at 1.9 million
The speakers noted that with lower rates of unemployment its going
to become difficult not just to find skilled workers but workers
"They're having a lot of trouble finding contractors,"
Haughey said that he feels the labor pool has been reduced in part
by stronger immigration enforcement and from hiring by manufacturers
and motor carriers.
"Companies will be forced to move shops where the labor is,"
Haughey also said, "Wage rate gains have lagged the economy
in nonresidential and heavy construction markets but will accelerate
For more information on the construction industry forecast, look
for the December issue of USGlass magazine. Subscriptions are complimentary
to those in the glass industry.