Construction Industry Holds Bright Spots Despite Dark U.S. Economy

Clearly, it's not pretty out there. Conditions in the commercial construction market have weakened substantially, and the residential housing market seems to be continually in search of a new all-time low. So you may be wondering what "bright spots" could possibly still exist.

I'm not implying that the U.S. economy - and subsequently, the construction economy - will see a sudden recovery by year's end. But there are economists who are hopeful we'll see some economic indicators start to edge upward by mid-year. And while commercial construction tends to lag a general economic recovery, there are positive indications that a shot in the arm may be forthcoming for certain market sectors.

Not surprisingly, the outlook for commercial construction in 2009 is for negative growth. Predictions range anywhere from a 3% to 9% decline, with most estimates hovering around the 7% mark. Construction sectors likely to see double-digit drops include retail, office, lodging and manufacturing. Other key sectors are expected to remain flat or see single-digit declines for the year.

The anticipated reduction in project volume will mean stiffer competition for remaining projects, leading to tighter profit margins. On the upside, some of the weaker competitors may lowball themselves right out of business, resulting in less competition once the industry starts to recover. Materials costs for the projects still out there are also forecast to decrease 1% to 5%, according to AGC chief economist Ken Simonson. This could help to soften any blows to your bottom line.

As of mid-December, public works construction was expected to be down about 5%. And the American Road & Transportation Builders Association was forecasting U.S. highway and bridge construction to be flat to weaker, with state and local budgets offsetting any increases in federal funding.

This could all change by the end of the month, if President Obama has his way. His proposed economic rescue package could unleash billions of dollars in funding for a range of ready-to-go infrastructure development and repair projects. While contractors specializing in road and public works (water and sewer) activity would reap the most immediate benefit, all market sectors could profit if the package delivers the intended kick start to the national economy it promises.

Non-traditional commercial construction may also prove a high point in the months ahead. Simonson foresees strength in power-related (i.e., coal-burning and nuclear plants) and energy projects (i.e., biodiesel and ethanol), as well as hospital and military construction activity.

Green building and design could present opportunity for the foreseeable future. According to the U.S. Green Building Council, it tends to be less affected by a down market due to its perceived economic and health benefits, as well as government regulation. The industry experienced a 58% increase in project value in 2008, and is forecast to triple by 2013.

So yes, there are bright spots to be found if you know where to look. The trick is to figure out how your business can capitalize on these and other opportunities if and when they develop.