Construction economics still a mixed bag

The construction outlook bag remains mixed, but the contents are looking more positive, particularly for 2010. I’ll just tell you what the latest reports are saying and you can interpret for yourselves.—Gary L. Parr

  • The September Architecture Billings Index, from AIA, Washington, was 43.1, a slight increase from the 41.7 August number. However, the new-projects inquiry score was 59.1, the highest level since Sept. 2007. “The fact that inquires for new project are so high is an encouraging sign that we may be seeing new construction activity entering the design phase,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “But that optimism has to be tempered by the fact that the marketplace is so competitive that firms are broadening their search for new projects, thereby inflating the number of inquiries that they are reporting. However, some larger stimulus-funded building activity should be coming online over the next several months, partially offsetting the steep decline in private commercial construction.”
  • According to the Assn. of General Contractors of America, Arlington, VA, Sept. construction employment declined in all but one state, compared with 2008. The number of states gaining construction jobs, from Aug. to Sept. 2009, also declined after increasing in June and July. “While there’s little doubt construction employment would have been worse without the stimulus, there’s no question that the industry continues to shed jobs at an alarming rate,” said Ken Simonson, chief economist for the association. “The stimulus remains an important measure, but until private-sector demand for construction resumes, there’s little chance the current construction employment decline will turn around or even stop.”
  • According to Reed Construction Data, Norcross, GA, the drop in construction materials prices is essentially over. Prices fell 7.5% from Sept. 2008 to August 2009, and prices have been essentially steady for the past three months. Prices are not expected to change in the next six months and, if they do, it will be with a slight upward trend. According to the report, “a slight upward trend in prices is expected through the winter because of expected international economic developments. Asian economies are recovering faster than the U.S. Chinese economic growth has already returned to about an 8% annual rate. This rising demand for construction commodities and manufactured materials will pressure U.S. construction materials prices up, in spite of the slack U.S. economy.”
  • Also, according to Reed Construction Data, economic recovery in mid-2009 will lead to construction recovery in early 2010. According to Reed economist, Jim Haughey, “the turnabout to growth in the overall economy last summer started changes in the economic environment that will lead to resumed growth in construction activity during the winter quarter. Single-family housing led the recovery, as it often does, with an initial burst of growth late in the spring that was a major contributor to the growth in GDP last summer. The balance of construction will begin to recover, market by market, a few months ahead. Retail construction will be one of the first markets to recover because it was one of the first markets to collapse. But recovery will be much delayed for manufacturing and power construction where energy-driven projects keep construction spending growing well in 2009. The enabling changes in the construction economic environment, underway in the last half of 2009, include gains in buyer confidence, both consumer and business, declining interest rate spreads for less than prime borrowers, reduction in surplus inventory, including homes for sale and empty nonresidential space and a significant improvement in export sales to a newly expanding world economy, especially in Asia.”

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