Stimulus Funds Kick Off A Slow Comeback After Market Bottoms
...another 2% next year, following a 10% decline this year in construction put-in-place. Commerce’s forecast for the lodging, office and commercial building markets is particularly harsh, with all three expected to record a second year of annual declines greater than 20%.
Raleigh, N.C.-based FMI Corp. is forecasting overall construction put-in-place in 2010 to decline 5%, following a 14% decline in 2009. An FMI survey shows tight credit continues to cause cancellations and delays, says Heather Jones, FMI’s construction economist. She notes that project delays are running four times the “normal rate,” and project cancellations are five times the normal rate. Cancellations currently account for 10% of industry backlog, which is double the percent in the third quarter of 2008, she adds.
The forecast produced by the Portland Cement Association, Skokie, Ill., calls for another 3% decline in 2010 in construction put-in-place, measured in constant 1996 dollars. That dip follows this year’s estimated 17% decline. Again, most of the easing in the rate of decline is tied to a modest rebound in housing. “If you look at housing in 2010 in percentage terms, it is going to look huge, but in terms of volume and putting people back to work, it is still very small,” says Ed Sullivan, PCA’s chief economist.
Sullivan says credit issues will continue to plague non-residential building markets through 2010. In fact, PCA predicts next year will be even worse than 2009 for non-residential building markets. “We don’t see a recovery in non-residential building until 2012,” says Sullivan.
“Next year will be a year of transition but also one of continuing general declines in overall construction,” says Anirban Basu, chief economist for the Associated Builders and Contractors Inc., Arlington, Va. “The sharpest declines will be in those segments most closely associated with speculative financing, such as lodging, offices and commercial construction,” he says.
“The decline in non-residential markets is relatively recent, and it will take most of 2010 or longer to correct itself,” says Basu. The rebound in non-residential building markets historically lags the recovery in the overall U.S. economy by 12 to 18 months. “That lag will be a little longer this time around because the job market has performed so badly,” he adds.
The economy just now appears to be emerging from the recession, and Basu says that movement pushes a “genuine non-government-induced recovery into late 2011.”
| Actual | Estimate | Forecast | Percent | Change | |
|---|---|---|---|---|---|
| TYPE OF CONSTRUCTION | 2008 | 2009 | 2010 | 08-09 | 09-10 |
| TOTAL CONSTRUCTION | 1,072,133 | 926,317 | 875,683 | -14.0 | -5.0 |
| TOTAL RESIDENTIAL | 357,408 | 268,500 | 277,425 | -25.0 | +3.0 |
| Single Family | 187,609 | 121,946 | 128,043 | -35.0 | +5.0 |
| Multifamily | 47,823 | 39,215 | 38,823 | -18.0 | -1.0 |
| Home Improvement | 121,977 | 107,339 | 110,559 | -12.0 | +3.0 |
| TOTAL NON-RESIDENTIAL | 505,265 | 437,730 | 367,038 | -13.0 | -16.0 |
| Lodging | 35,818 | 25,789 | 16,763 | -28.0 | -35.0 |
| Office | 70,305 | 54,838 | 41,128 | -22.0 | -25.0 |
| Amusements and Recreation | 21,488 | 18,265 | 14,794 | -15.0 | -19.0 |
| Religious | 7,125 | 6,056 | 5,269 | -15.0 | -13.0 |
| Education | 104,081 | 97,836 | 95,879 | -6.0 | -2.0 |
| Health Care | 47,699 | 45,791 | 44,875 | -4.0 | -2.0 |
| Commercial | 84,942 | 59,459 | 42,216 | -30.0 | -29.0 |
| Manufacturing | 61,269 | 67,396 | 43,807 | +10.0 | -35.0 |
| Public Safety, Administrative | 12,936 | 13,712 | 14,261 | +6.0 | +4.0 |
| Transportation | 33,953 | 31,916 | 32,873 | -6.0 | +3.0 |
| NON-BUILDING STRUCTURES | 209,460 | 220,087 | 231,219 | +5.0 | +5.0 |
| Conservation and Development | 5,405 | 5,675 | 6,243 | +5.0 | +10.0 |
| Highways and Streets | 81,801 | 85,073 | 88,476 | +4.0 | +4.0 |
| Sewers Systems | 25,143 | 25,646 | 26,928 | +2.0 | +5.0 |
| Power | 80,160 | 86,573 | 91,767 | +8.0 | +6.0 |
| Water supply | 16,951 | 17,121 | 17,805 | +1.0 | +4.0 |
| Source: FMI corp., raleigh, N.C. Historical data is compiled from building permits, construction-put-place and trade-source estimates for 2009, as well as a forecast for 2010 by FMI. | |||||
Residential markets will begin bouncing back next year, according to analysts at Washington, D.C.-based National Association of Home Builders. NAHB forecasts an average annual increase in housing starts of about 27% next year. “Things will start picking up again by summer,” says Bernie Markstein, director of forecasting at NAHB.
“It looks like the market has hit bottom, and now it is going to be a long, slow dig out of this,” Markstein says. NAHB predicts single-family housing starts will reach 600,000 next year, with a “full recovery” by the end of 2011, to approximately 894,000 starts.
The outlook for the residential market was bolstered on Nov. 5 by Congress’ action to extend federal tax credits for first-time home buyers and expand the program to other home buyers. President Obama signed the measure on Nov. 6. “This will help, and it will probably cause us to raise our forecast,” Markstein says.
Stimulus at Work
For economists at the American Road and Transportation Builders Association, the glass appears to be half full, at least through 2010. They project 8% growth in 2010 for construction put-in-place for roads and bridges. Assuming a new federal transportation bill is not passed by Congress and funding remains constant, ARTBA’s latest conservative dollar estimate for that sector in 2010 is $90.5 billion, compared to $84 billion in 2009.
The main caveat to ARTBA’s 2010 forecast is state and local funding. “That is the big wild card,” says Allison Black, an economist with ARTBA. State funding levels have been “fairly erratic,” with wide variations based on individual...
