9/11/10 – US Construction Body Forecast Predicts 'Slow Progress' in 2011
9 November 2010
In its 2011 economic forecast, Associated Builders and Contractors (ABC) for the U.S. commercial and industrial construction industry is gloomly on the prospects for growth for the industry. "The period of rapid improvement in spending levels did not begin in 2010, and will not happen in 2011," said ABC Chief Economist Anirban Basu. Associated Builders and Contractors (ABC) is a national association with 77 chapters representing 25,000 merit shop construction and construction-related firms with two million employees
"ABC’s forecast of non-residential construction spending for next year suggests that total spending will be 0.1 percent less than 2010 levels. Privately financed construction levels are projected to decline 0.2 percent while publicly financed construction levels are projected to be virtually flat. The bottom line is the nonresidential construction recession is largely over, but 2011 will be associated with grudgingly slow progress," said Basu.
"To the extent that there has been recovery in non-residential construction, it has been concentrated in segments closely tied to federal funding and the stimulus package passed in February 2009 in the midst of the recession," Basu said. "For example, five non-residential construction categories monitored by the U.S. Census Bureau have experienced rising spending levels from the same time last year, including conservation and development, water supply, sewage and waste disposal, and highway and street, and transportation.
"In contrast, 11 non-residential construction sectors have experienced year-over-year declines in spending, a reflection of the lack of available capital to finance growth and investment," said Basu. "The deepest downturns registered in construction were related to lodging, manufacturing, office and commercial. ABC expects that the lack of access to capital will continue to deter economic progress in 2011, and is forecasting 1.7 percent GDP growth next year despite ongoing federal stimulus funding and the expectation of a more expansive monetary policy.
After losing about 50,000 jobs in 2010, the ABC does not see non-residential building employment rebounding until 2012. However, ABC predicts that residential construction employment will grow substantially as the number of housing starts will expand by roughly 25 percent," Basu said.
The ABC says that the good news is the period of deep decline in U.S. nonresidential construction spending is over. The bad news is this appears to represent stagnation, with overall construction volumes mired at or near bottom-of-the-cycle levels. In other words, by remaining near 2010 levels, 2011 construction spending is positioned to be nearly a quarter less than 2008 totals.
In terms of segments poised to experience construction spending growth in 2011, ABC projects that power will lead the way, with spending rising by an anticipated 5.5 percent. Segments positioned for decline include those that are closely li
nked to state and local government spending. With many states and localities trimming both operating and capital budgets, the expectation is that construction volumes in the education category will slip next year.
ABC expects that 2012 will be better for privately financed construction. Credit conditions will improve by that point as large, well-capitalized banks become more aggressive in their pursuit of industry market share. Finally, certain leading indicators have turned the proverbial corner, including ABC’s Construction Backlog Indicator, which has been indicating a steady improvement in the commercial and industrial construction outlook.