Commerce Forecasts Deeper Declines

The U.S. Dept. of Commerce predicts that this year’s 6.3% decline in the value of new construction put-in-place is just the first step in the construction industry’s retrenchment. It forecasts another 7.5% decline next year as the housing market sinks further, pulling nonresidential building markets down with it. “The 12.5% rate of decline we are calling for in the housing market in 2009 is conservative,” says Patrick MacAuley, the Commerce Dept. economist who puts together the forecast. “Nonresidential has already started to swing into the negative. In terms of starts, it is getting pretty grim.” Commerce’s prediction makes many optimistic assumptions. “We assume the $700-billion bailout package will help control the financial crisis,” says MacAuley. In addition, the Commerce Dept. forecast assumes there will be a large economic stimulus package early next year and no major international crisis. This year’s relatively strong increase in manufacturing construction is a matter of “finishing up work that has already started” but there are relatively few new starts for manufacturing work in the pipeline, he says. The risk of the Commerce Dept. forecast is on the downside. “But the public side may have some upside depending on the size and makeup of the stimulus package,” MacAuley adds.

PCA Says the Worst Is Yet To Come

It all goes back to what you think the overall economy is going to do—and the overall economy is in trouble, according to the Portland Cement Association’s forecast for 2009. “We are not optimistic at all on the overall economy,” says Ed Sullivan, PCA’s chief economist. He sees “significant” declines in the GDP for the next two quarters and “subdued” growth after that. But Sullivan’s main concern is unemployment. “We see a job loss of 1.2 million this year and another 1.8 million next year,” he says. “How can any market recover in that kind of environment?” He expects nonresidential markets to post double-digit declines next year, and he fears that the foundation of public- works construction is being undermined by falling revenue and unfavorable bond markets. As a result, PCA predicts construction will decline 13.9% next year, after adjusting for inflation.