The Building Tradesman Newspaper

Friday, September 16, 2005

'Widespread improvement' for U.S. construction, but Katrina raises questions

By The Building Tradesman

U.S. construction industry observers said the first seven months of building activity in 2005 showed robust growth over the same period last year, and the effects of Hurricane Katrina will bring "varied impacts" in the future.

McGraw-Hill Construction said new construction starts increased 1 percent in July over the previous month, and overall spending was pegged at $370 billion for the first seven months of the year - 6 percent over the same period in 2004. The Midwest was the only region which declined, dropping 2 percent this year.

"The most recent two months have been especially strong, supported by the highest levels so far in 2005 for housing, public works, and nonresidential building," stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "Single-family housing is on track to set a new record this year, but there's the growing sense that this market may be nearing a peak as mortgage rates are beginning to move upward. For total construction to show further growth next year, it will need public works and nonresidential building to increasingly become the source of expansion."

Meanwhile, the chief economist of The Associated General Contractors of America (AGC), citing U.S. Census figures, agreed that construction activity through July showed "widespread improvement" compared to the first seven months of 2004, but the devastation wrought by Hurricane Katrina will have "varied impacts on construction markets for the rest of 2005 and into 2006."

Simonson said multi-family construction jumped 20 percent through the first seven months of 2005, nearly twice the growth rate for single-family and improvements. Manufacturing construction continued to lead the private nonresidential category with a 27 percent year-to-date advance, followed by "multi-retail" (general merchandise stores, shopping centers and shopping malls), 23 percent, communications, 12 percent and lodging, 9.4 percent.

He said the leading public categories - educational and highways and streets - were up 5.9 and 7.2 percent, respectively.

"These figures overstate 'real' growth because they don't adjust for a large run-up that has occurred in the cost of cement, steel, copper, gypsum, and petroleum-based inputs," Simonson said. "Unfortunately, Katrina will push many of these costs much higher. Contractors use a lot of diesel fuel for off-road equipment, their own trucks, and the multitude of deliveries of materials and equipment. Petroleum or natural gas is a key ingredient in asphalt, roofing materials, plastic pipe and insulation.

"Cement was already in short supply in 32 states and the District of Columbia last month," Simonson continued. "The disruption to ocean, barge and rail transport from Katrina, and the loss of power to cement plants in the storm's path, will cut further into cement supplies. At the same time, the urgent need to stabilize and rebuild roads, other infrastructure and buildings will increase demand for cement and other materials."