2008 Construction Outlook

A new construction outlook report is now available and it is expecting a 2% decline in '08. This decline is overall U.S. construction spending and is mostly brought down by the continued struggles of the housing market as the dollar volume of single-family housing is expected to drop 3% as multi-family housing will slide 8% in dollars. Commercial building is expected to fall 6% in dollar volume. This seems like a large decline, but what has to be kept in mind is recent history. The past few years commercial construction has gone through the roof and it is now leveling out to more of a natural growth rate. So year over year, yes the market is declining, but over a larger spectrum it is merely coming back to the average rate of growth. On the positive side, institutional buildings and public works is expected to rise in '08, 4% and 3% respectively. The report believes that "transportation projects should continue to see moderate growth amid a renewed emphasis on infrastructure maintenance and upgrades, particularly in the aftermath of the I-35W bridge collapse in Minneapolis. Financing from public sources will stay generally supportive, and the growth of public-private partnerships also offers the potential for greater funding." This is interesting for the reason that a separate study found that "despite increased efforts, little progress has been made to reduce the percentage of structurally deficient and functionally obsolete bridges over the past year. This survey shows that across the nation the percentage of structurally deficient and functionally obsolete bridges improved by just .4% over the past year to 24.1%." So in spite of the initial push to upgrade obsolete bridges there has not been much physical progress. Hopefully this is due to a slow political process of appropriating the necessary funds for these repairs/rebuilds and next year's number will show a significant increase and thus help support the transportation construction industry. In total, an implied decline in the commercial construction industry should be viewed over a scope of at least five years and not just year to year as we were luck enough to experience a great boom for a year or two - which I once heard was as high as 18% above average - but are now coming back down to Earth and settling into the normal growth rate.

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