Category: Construction + Economy

11% Reduction in Nonresidential Construction Predicted in 2009

As the overall economy continues to struggle, nonresidential construction spending is expected to decrease by 11% in 2009 in inflation-adjusted terms, according to the AIA Consensus Construction Forecast. This semi-annual…

As the overall economy continues to struggle, nonresidential construction spending is expected to decrease by 11% in 2009 in inflation-adjusted terms, according to the AIA Consensus Construction Forecast.

This semi-annual forecast is based on a survey of the nation’s top construction forecasters, including McGraw Hill Construction, Global Insight, Moody’s Economy.com, Reed Business Information and FMI. The purpose of the Forecast Panel is to project business conditions in the construction industry over the coming 12-18 months.

The outlook is fairly bleak across the entire nonresidential market, with no winners. Commercial projects, including office and retail projects, however, will see the most significant decreases in activity.

“As profits for businesses have fallen and the ability to get credit to finance projects has become far more difficult, construction plans have been put on hold or canceled outright in recent months,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “This is not expected to turn around anytime soon and it’s likely to get worse before it gets better.”

Click here to see the complete report from AIA.

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Builder Confidence Remains at Record Low in December

Builder confidence in the market for newly built single-family homes held at a record low in December as deepening economic turmoil, a deteriorating job market, and an ongoing flow of…

Builder confidence in the market for newly built single-family homes held at a record low in December as deepening economic turmoil, a deteriorating job market, and an ongoing flow of foreclosed homes onto the market continued to negatively impact sales conditions.

The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) did not budge in December from November’s all-time low reading of 9, with two out of three component indexes losing further ground.

“The crisis continues,” said NAHB Chairman Sandy Dunn, a home builder. “While builders are doing everything we can in the way of price and non-price incentives to move new homes off the books, buyers are afraid to move forward, and in any case there is almost no way to compete with the cut-rate product that is continually flooding the market from mounting foreclosures.”

“We have seen no improvement over the past month in terms of sales conditions for new homes,” NAHB Chief Economist David Crowe said. “In fact, certain factors have gotten progressively worse, not the least of which is the job market, where massive layoffs are having a devastating effect on consumer confidence. At this point it will take definitive government action to stop the slide in home values and turn the tide of consumer sentiment.”

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Annual Rate of Construction Valued at $1.08 Trillion in November

The U.S. Census Bureau of the Department of Commerce recently announced that construction spending during November 2008 was estimated at a seasonally adjusted annual rate of $1,078.4 billion, 0.6% (±1.6%)…

The U.S. Census Bureau of the Department of Commerce recently announced that construction spending during November 2008 was estimated at a seasonally adjusted annual rate of $1,078.4 billion, 0.6% (±1.6%) below the revised October estimate of $1,085.3 billion. The November figure is 3.3% (±2.2%) below the November 2007 estimate of $1,115.3 billion.

During the first 11 months of this year, construction spending amounted to $998.4 billion, 5.3% (±1.3%) below the $1,054.3 billion for the same period in 2007.

First, let’s look at private construction:

Spending on private construction was at a seasonally adjusted annual rate of $756.4 billion, 1.5% (±1.1%) below the revised October estimate of $767.7 billion. Residential construction was at a seasonally adjusted annual rate of $328.3 billion in November, 4.2% (±1.3%) below the revised October estimate of $342.6 billion.

Nonresidential construction was at a seasonally adjusted annual rate of $428.2 billion in November, 0.7% (±1.1%) above the revised October estimate of $425.1 billion.

And now for public construction:

In November, the estimated seasonally adjusted annual rate of public construction spending was $322.0 billion, 1.4% (±2.6%) above the revised October estimate of $317.6 billion. A bright spot in the construction industry in 2008, educational construction was at a seasonally adjusted annual rate of $88.7 billion, 1.3% (±2.7%) above the revised October estimate of $87.6 billion.

The November numbers surprised some economists who thought nonresidential construction would have taken a significant hit by that point. But the value of put in place construction increased in November over October, and what’s more, it increased 16% over the first 11 months of 2008 compared to the same period in 2007. As the below graph shows, as of November, data representing the nonresidential construction market has yet to peak for either the private or public components. This is likely because there were so many projects underway at the beginning of 2008.

However, there are signs of underlying weakness, such as a decline in retail construction that is not surprising considering the weakness in retail sales over the past few months, and nonresidential construction is being forecasted down in 2009 because of weakness in the overall economy (deep recession, actually). I’ll have more on 2009 soon. But in the meantime, expect 2008 to close at more than $1 trillion in total construction spending.

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