Construction to Crawl Slowly Upward

If you're reading this, I hope it means you've made it through another rough year and are in a position to jump back into the trenches in the next. While 2011 is unlikely to bring any big booms in activity, there are indications for improvement in certain construction segments -- the first steps out of the deep hole the industry fell into over the past two years.

As is typical, forecasts for the year vary depending on the economic indicators used and how they are interpreted.

The American Institute of Architects (AIA) uses architectural billings as a prognosticator of future building construction. The latest index suggests recovery in nonresidential building is still a ways off due to ongoing weakness in the general economy and continued tight lending standards for new projects. Even so, the AIA's construction forecast panel projects just over a 3% increase in 2011 in nonresidential, with over a 5% rise in the commercial sector, -2% in manufacturing facilities and +4% in institutional buildings. Of course, this comes off of double-digit declines in 2010.

McGraw-Hill Construction, which bases its forecast on U.S. construction starts, casts a decidedly different outlook. It forecasts overall construction starts to grow 8% (in dollar value), following a 2% decline in 2010. This will be led by a 27% leap in single-family housing, 24% rise in multifamily housing and 16% increase in commercial buildings. Manufacturing building starts are forecast to grow 9%. A 1% decline is expected for institutional building and public works, with electric utilities expected to slide 10%.

Falling between these two forecasts is Eli Lustgarten, senior research analyst for the industrial sector at Longbow Research. Addressing dealers at the Associated Equipment Distributors Executive Forum last October, he predicted at least a mid-single-digit gain in construction spending, led by residential spending and a modest turnaround in the nonresidential market (anywhere from 3% to 10%).

Likewise, Jim Haughey, chief economist for Reed Construction Data, anticipates overall construction spending to be up about 5% in 2011, with a 12% to 13% jump in 2012.

Some market segments will fare better in 2010 than others. The uncertainty surrounding federal funding, shrinking state budgets and the conclusion of projects funded by stimulus dollars casts a cloud on future infrastructure investment. Compounding this uncertainty are proposals in Congress that would cut a variety of construction programs as well as rescind unspent stimulus dollars in an effort to reduce the federal deficit.

Given these conditions, the American Road & Transportation Builders Association is forecasting a 4.4% decline in the highway and bridge construction market in 2011. The real value of highway, street and bridge construction is expected to fall to $78.5 billion, compared to 2010's estimated $82.2 billion. In addition, work on airport runways is projected to fall 10%.

Green construction, on the other hand, continues to be red hot. McGraw-Hill Construction reports it grew 50% in the last two years, from $42 billion to $71 billion, accounting for roughly 25% of all new building activity in 2010. Projections are for it to reach $135 billion by 2015. (For more information on green building and other sustainable construction trends, visit ForConstructionPros.com/Sustainable).

Considering the constant ups and downs we've seen month over month, it's really anyone's guess as to where overall construction activity and its various sectors will end up. Yet, there are enough positive indications to believe the free-fall we've seen the past couple years is largely over, and that a level of cautious optimism for 2011 and beyond is not out of the question.

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