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Nonresidential construction declines in certain segments

Post Time:Nov 12,2013Classify:Industry NewsView:46

Recent economic indicators are bleaker than the previous months, according to FMI Corp.’s Construction Outlook: First Quarter 2008. The housing downturn, weakening employment rates, worsening consumer confidence, credit tightening and the threat of inflation are expected to drag on the economy. “Nonresidential construction will remain positive in 2008 due to the strength of a few segments,” says Heather Jones, construction economist, FMI Corp., Raleigh, N.C. “It will increase 2 percent in 2008 to $466.9 billion. However, declining starts from 2008 will finally catch up in 2009 for a loss of 3 percent to $455.1 billion. Health care, educational, public safety, transportation, communication and manufacturing will be the only bright spots for the next two years. Lodging, office, commercial, religious and amusement and recreation construction will contribute to the decline in nonresidential construction.” Ken Simonson, chief economist for the Associated General Contractors of America, Arlington, Va., agrees: "Nonresidential construction is entering a period of divergent trends for activity, materials costs and labor,” he says. “In 2007, the industry experienced high levels of demand in nearly every segment and region. … In 2008, some nonresidential segments, including power and energy, will continue to grow, but others such as lodging will slow or decline.” This year, the construction Producer Price Index is likely to go up 6 percent to 8 percent—compared to 4.5 percent this past year—while the Consumer Price Index climbs 2.5 percent to 3.5 percent, vs. 4.1 percent in 2007. Read more... Jones says the office segment will see a year over year decline of 3 percent from 2007 to 2008 and 8 percent from 2008 to 2009; the commercial segment will see a decline of 3 percent from 2007 to 2008, and 8 percent from 2008 to 2009; the religious segment will see a decline of 4 percent from 2007 to 2008, and 9 percent from 2008 to 2009; and the amusement and recreation segments will see a decline of 2 percent from 2007 to 2008, and 9 percent from 2008 to 2009. Health care construction will remain positive partly due to facility upgrades across the country and seismic retrofits in California, going up year over year by 9 percent from 2007 to 2008 and 2 percent from 2008 to 2009, Jones says. Education construction will decline year over year 4 percent 2007-08 and 2 percent 2008-09 in some areas of the country. The reason for the decline is less property taxes and therefore less state revenue. However, many metropolitan statistical areas and school systems in several states have passed education bonds, which will help to stop growth from turning negative, according to the report. Higher education will experience steady growth driven by an increase in endowments. Public safety construction will grow 7 percent 2007-08 and 2 percent 2008-09 because of increasing inmate populations--that is rising faster than the general population growth--and an increase in fire and police stations. Homeland Security border work and port work to increase sizes that will accept post-Panamax-sized vessels will help drive transportation construction 8 percent 2007-08 and 2 percent 2008-09. Flight delays will result in runway and terminal expansions at airports, and increase construction, according to the report. Manufacturing will not experience decreases in 2008 and 2009 partly because it is at a low level, $39.2 billion; its previous high, $41 billion, from 1998 will not be surpassed until 2010, Jones says. The sector will see a year over year growth of 4 percent 2007-08 and 4 percent 2008-09. For the first time, several multibillion dollar projects are under construction at the same time, Jones says. “For example, the $3.5 billion Mixed Oxide Fuel Fabrication Facility in South Carolina, the $1 billion expansion of the Marathon Petroleum Refinery in Louisiana and the $1.5 billion LES Uranium Enrichment Plant in Eunice, N.M., that started in 2006,” she says. “Several billion dollar plants are planned in Texas as well but have not started yet.” The total revenue of architectural and related services firms in the fourth quarter of 2007 rose 4.7 percent from the third quarter and 13.5 percent from the fourth quarter of 2007, according to the Census Bureau’s quarterly release on revenue for selected services March 5. The American Institute of Architects' Architecture Billings Index tumbled to 41.8 for the month, its lowest level since October 2001, according to a Reuters report March 19. Read more ...

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