Residential to lead construction back

Residential to lead construction back

The drop-off in construction won’t bottom out until the end of the year at the earliest-- well after the general economy should begin to pick up—said two construction-industry economists, speaking during a joint webcast by Reed Construction Data and Associated General Contractors (AGC) of America

The drop-off in construction won’t bottom out until the end of the year at the earliest-- well after the general economy should begin to pick up—said two construction-industry economists, speaking during a joint webcast by Reed Construction Data and Associated General Contractors (AGC) of America.

According to Jim Haughey, chief economist for Reed Construction Data, total construction spending won’t hit its low point until the end of 2009. That’s after when he projects the U.S. economy will bottom out, in late summer or early fall. However, he doesn’t think peak GDP will be recovered until the end of 2010.

Haughey said that residential construction will recover well before non-residential. Residential spending, which dropped 26.6% in 2008, will increase 9.8% in 2010, he said. Non-residential, which increased 12.1% in 2008, will only increase 1.4% in each of the next two years, however.

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The drop-off in construction won’t bottom out until the end of the year at the earliest-- well after the general economy should begin to pick up—said two construction-industry economists, speaking during a joint webcast by Reed Construction Data and Associated General Contractors (AGC) of America.

According to Jim Haughey, chief economist for Reed Construction Data, total construction spending won’t hit its low point until the end of 2009. That’s after when he projects the U.S. economy will bottom out, in late summer or early fall. However, he doesn’t think peak GDP will be recovered until the end of 2010.

Haughey said that residential construction will recover well before non-residential. Residential spending, which dropped 26.6% in 2008, will increase 9.8% in 2010, he said. Non-residential, which increased 12.1% in 2008, will only increase 1.4% in each of the next two years, however.

There are three indicators to be aware of to gauge if recovery is on the horizon, Haughey said. These are: the consumer confidence index, which fell from 100 to 38, needs to rise to around 70 for several months before consumer spending increases; the inventory/sales ratio needs to decline for several months before factories recall workers; and the credit premium for less-than-prime borrowers needs to drop before borrowing to invest stops falling.

The anticipated federal stimulus package will help, but most likely not be felt until late in the year or 2010, Haughey said. “It looks like the stimulus package is mostly going to be a boost to the recovery, but it will have little effect in slowing the recession,” he noted.

“We think the stimulus package is very crucial for construction, and it will make a big difference,” said Ken Simonson, chief economist for the AGC of America, noting that it would also encourage spending on alternative energy and that in turn would stimulate construction spending.

Simonson forecasts total construction spending to be down from between 1% and 7% in 2009, with residential spending somewhere between down 2% and up 2% and non-residential spending dropping between 3% and 9%.

In 2010, residential construction will grow at a rate somewhere between the high single digits and low double digits, primarily because it will be coming back from such a low point, Simonson said, but non-residential will continue to shrink.

“Only residential was down from 2007 to 2008,” Simonson said. “But as existing projects finish up, there won’t be nearly as much to take their place…It does look like a lean couple years ahead for non-residential construction.”

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