The Building Tradesman Newspaper

Friday, December 02, 2011

Tepid outlook for construction, rest of economy in ‘12

By The Building Tradesman

ANN ARBOR – Painstakingly “moderate” employment and economic growth will take place in Michigan and across the nation in 2012 and 2013, as the emergence from the Great Recession will continue to be slower than most economic recoveries in U.S. history, a University of Michigan forecast said last month.

“Job gains have picked up a notch, consumer sentiment has recouped about half the ground lost this summer and the chances of another downturn have diminished,” said University of Michigan economist Joan Crary in the school’s annual economic forecast released Nov. 18. “History shows, however, that it is much more difficult to recover after a financial crisis like the Great Recession than it is after a more typical recession, and policymakers are still struggling with ways to restore balance to the economy.

“It seems likely that the path of this recovery will continue to be a marathon, not a sprint.”

While a forecast for the overall construction industry in Michigan was not released in the report’s economic summary, housing construction was depicted as continuing to be “extremely weak” with slight rises predicted in that sector in the next two years.

Overall, construction employment numbers provided during the course of this year by the Associated General Contractors and McGraw-Hill Construction have shown a relatively robust construction economy in Michigan compared to the rest of the country (except for October). But the employment numbers have been on the low side of what could be called healthy, with geographic pockets in our state still seeing significant unemployment.

And in a 2012 forecast, the U.S. construction market is expected to flatten out compared to this year, according to McGraw-Hill. The group said in October that the level of construction starts in 2012 is expected to be $412 billion, compared to an anticipated $410 billion in 2011.

The American Institute of Architects – whose numbers are a reliable first predictor for the construction industry – reported on Nov. 16 that its Architecture Billings Index improved its score by nearly three points from September , though the 49.4 score still reflects low demand. The group said any score below 50 indicates a decrease in demand for design work.

“An increase in the billings index is always an encouraging sign,” AIA Chief Economist Kermit Baker said. “But there continues to be a high level of volatility in the marketplace with architecture firms reporting a wide range of conditions from improving to uncertain to poor.”

Overall economic activity in Michigan and the rest of the nation puttered along in 2011 and is expected to continue to do so for the foreseeable future, according to the U-M.

The report said the Michigan economic recovery from the bottom in late 2009 “has not been a smooth climb, especially during 2011.” Employment spiked in the first quarter of 2011, went negative in the second quarter and rose in the third quarter. The fourth quarter in Michigan is expected to see close to zero job growth. Overall job growth in Michigan in 2012 is expected to rise by 0.8 percent and accelerate to 1.4 percent in 2013, the forecast said. That translates into job gains of 33,000 in 2012 and 53,700 in 2013, after jobs are expected to rise by 61,200 in 2011.

Michigan has a lot of ground to make up. From the spring of 2000 to the summer of 2009, the state lost 857,000 jobs. From the bottom of the downturn through 2013, U-M economists expect the state to add 178,000 jobs.

The overall U.S. jobless rate “begins to creep down but remains uncomfortably high even at the end of 2013 – four-and-a-half years after the official end of the recession,” Crary said.