Economic downturn? Fugetaboutit!

August 11, 2010

For the rest of this year and well into the next, you're going to hear a lot of negative talk in the media about the economy. Consumer confidence on the decline. New housing construction tumbling. Mega-corporations facing General Motors-size crises.

What should you do about all this bad news? Ignore it. The U.S. commercial construction industry is going to sail along quite nicely through 2007, thank you very much.

So says Jim Haughey, director of research and analytics for Reed Construction Data, who has been forecasting the construction market for decades. Haughey spoke at the recent RCD breakfast session at the Construction Specifications Institute convention in Las Vegas last month, and you could just hear a great sigh of relief from the audience every time he put up another slide.

"A slow economy is not going to be a bad thing for the construction market," he told the 200 or so architects, specifiers, contractors, and building product manufacturers at the RCD event. For nonresidential construction, he said, "the best periods of growth are still ahead." Does that sound beautiful or what?

Haughey sees a 7.4% gain in total construction spending for 2006, with 5.7% growth next year. That's a slight decline in dollar growth, but not necessarily a decline in total construction volume, says Haughey, because inflation is holding steady. In 2007, the U.S. gross domestic product will fall slightly below 3% annual growth, easing pressure on materials prices and availability and keeping commercial real estate—and commercial construction—strong.

Several factors contribute to Haughey's optimistic outlook for nonresidential construction:

America needs more capacity. We're running out of space to put people and things, so we'll need to build. Business investment in capital goods will continue to grow at 8% or more a year, two or three times faster than the consumer spending growth. Plus, corporate profits are up 45% over the last three years.

Public budgets are oh so robust. With 48 of the 50 states having underestimated their tax receipts last year, institutional building will be thriving.

The cost of credit will still be bargain-basement cheap (5.00% for 1-year T-bills), so borrowing will not be a problem for you.

Prices for materials will not rise as radically as they did in 2004 and 2005. That means you'll be able to factor reasonable price increases into your bids.

Any dark clouds in Haughey's blue skies? Well, cement and gypsum products are going to stay in short supply. Wages could jump 4% for hourly workers, 5% for professionals, next year. And there probably won't be enough new blood aged 20–24 to fill all the entry-level construction jobs.

All in all, though, a pretty rosy picture for commercial construction.

For a copy of Jim Haughey's "2006–07 Construction Outlook," go to:www.bdcnetwork.com/contents/pdfs/bdc0604csishow2006.pdf.

         
 

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