Forecasters Say Construction Industry is Slowly Showing Signs of Recovery
October 26, 2009

For the commercial construction, it may be 2011 before the segment sees a “good” year. Jim Haughey, chief economist with Reed Construction Data, shared that prediction last week during the group’s 2009 market insights webcast.

Haughey said the economic environment for construction through 2010 is faced with a number of challenges, including sub-par Gross Domestic Product  (GDP) growth through 2011. And, while spending confidence is up,  the GDP  is still depressed.

“We’ll also see residential foreclosures continue through next year [though it will begin to slow,” he said. “Also, public construction is increasingly restrained by the largest decline in state tax receipts in over 50 years … it’s a problem that’s still ahead.”

Image source: Reed Construction Data

Looking at construction spending, Haughey said it’s down about 11 percent this year and 2010 will be down slightly from 2009.

“It will start to turn around in 2011 [and we’ll see] about an 8 to 9 percent gain,” he said.

In terms of residential construction, Haughey said housing starts are beginning to pick up.

“We’re seeing progressive gains in housing, but we’re still a long ways below where we were in 2007,” he said. “The housing market is growing, but will stay depressed for at least two more years.”

And while Haughey said it will likely be another year and a half to two years before the non-residential market sees a “good” year, he did have some positive news: non-residential building declines are nearing the end.

Image source: Reed Construction Data

“June of 2009 appeared to be the worst month,” he said, explaining that most of the expected decline has already occurred. “We still have four to six months to go.” He added, though, that he does not anticipate as big of an impact in the non-residential market as he’s seen before in other recoveries.

For non-residential construction spending, he said the dip has not been as  grave as that of the housing market.
“I anticipate that early next year the [spending] decline will be over,” said Haughey. “I don’t anticipate any significant volume change until at least next summer.”

Looking at non-residential starts, he said there have been a number of positives, but even more heavy negatives.

“The positive ones are those with a direct impact from the Stimulus,” he said, adding that quarter-to-quarter change in Stimulus spending is now peaking and spending will expand in 2010 but at a slower pace.

Image source: Reed Construction Data

“Only about one-third of the Stimulus plan was designed for a quick boost to the economy,” he said.

There are a number of segments seeing positive growth as a result of the Stimulus. Bridges, dams/marine work, miscellaneous civil, highway and government offices are all up compared to this time last year. On the negative side, private office and retail construction are both down 44 percent, while hotel construction is down 47 percent.

Before concluding his presentation, Haughey shared his thoughts on the top five construction segments he expects to show improvement in 2010. These are:

  1. Retail because “it was the first commercial market to fall and it will be the first to come back,” Haughey said.
  2. Highway, “an obvious function of the Stimulus.”
  3. Amusement/recreation (i.e., sports stadiums, arenas, theaters, etc.)
  4. Military spending. Haughey said this is from money for projects that was made available years ago in better economic times.
  5. Single-family homes. Haughey expects to see 54 percent growth in units (not dollars). “The market will move from the worst we’ve ever seen to just miserable.”

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