The Building Tradesman Newspaper

Friday, February 11, 2011

2011 construction forecast: Waiting time for industry’s turnaround maybe another year

By The Building Tradesman

A better year in 2011, but that’s not saying much.

“This won’t be an easy year for most firms, but it will be better than last year,” said Stephen E. Sandherr, chief executive officer of the Associated General Contractors. “If current trends continue, this industry will be in a much better position 12 months from now than it is today.”

Can’t wait. On Jan. 24, Sandherr and the AGC released the results of a nationwide construction firm survey, and a general forecast for the industry, as part of their “Construction Industry Hiring and Business Outlook” event.

The AGC’s summary said: “Despite predictions of slight growth in demand for several key construction sectors and an improving construction employment picture, construction firms are bracing for at least one more difficult year as the benefits of the stimulus begin to fade and overall demand for construction remains weak. Indeed, according to an analysis of survey responses from nearly 1,300 construction firms conducted by the Associated General Contractors of America and Navigant, the industry is not likely to experience a strong recovery until at least 2012.”

The survey found that more construction firms are planning to hire workers this year than are planning to make layoffs.

Sandherr noted that while 55 percent of firms laid off staff and only 20 percent of firms added employees in 2010, the outlook is more positive for 2011. He said that 27 percent of construction firms report they plan to add staff in 2011 while only 20 percent report plan layoffs. Even more positive, expanding firms plan to hire an average of 23 employees, while contracting firms plan to lay off an average of 16 employees.

Despite the improving employment outlook, more contractors expect the construction market to shrink in 2011 than expect it to grow.

Contractors are most pessimistic about the private office market, where 56 percent expect activity to decline, followed by the retail, warehouse and lodging market, where 52 percent expect less activity. Contractors are most optimistic about the hospital and higher education market, where 32 percent expect growth and the power market, where 29 percent expect growth.

Low expectations by contractors may be driven by the fact that most firms expect stimulus-funded construction activity will decline this year.

“The stimulus propped up many construction jobs during the past two years,” said Ken Simonson, the association’s chief economist, noting that firms reported one-in-five employees were involved in stimulus-funded projects during the past 12 months. “The stimulus is already becoming a thing of the past in most contractors’ minds.”

The American Institute of Architects – where construction plans are drawn and which offers one of the first indications of a change in the industry – reported that “a slow recovery period is projected for the nonresidential construction industry this year, and 2011 spending levels are not anticipated to be enough to show growth over 2010 figures. While activity for institutional projects should hover near 2010 levels, there is likely to be a modest decline in commercial construction.”

In its forecast released Jan. 26, the AIA said overall nonresidential construction spending is expected to decrease by two percent in 2011, with 2012 seeing an increase of five percent in inflation adjusted terms.

“The key factors that have prevented an accelerated recovery include historically low lending rates for real estate projects, the lingering effects of general overbuilding and an unfavorable bond market that has hampered the ability for municipalities to get the requisite funding to build new schools and hospitals,” said AIA Chief Economist Kermit Baker. “Conditions should improve later this year and gain momentum as we move into 2012, particularly for hotel, retail and office building projects.”