a:26:{s:9:"weblog_id";s:1:"2";s:8:"entry_id";s:0:"";s:6:"sticky";s:0:"";s:14:"allow_comments";s:1:"n";s:16:"allow_trackbacks";s:1:"n";s:10:"entry_date";s:19:"2009-01-15 07:50 PM";s:15:"expiration_date";s:0:"";s:23:"comment_expiration_date";s:0:"";s:9:"author_id";s:1:"2";s:6:"status";s:4:"open";s:14:"trackback_urls";s:0:"";s:18:"versioning_enabled";s:1:"y";s:5:"title";s:55:"Steep Nonresidential Decline, Leading Forecasters Agree";s:9:"url_title";s:54:"steep_nonresidential_decline_leading_forecasters_agree";s:6:"submit";s:6:"Submit";s:10:"field_id_5";s:55:"Steep Nonresidential Decline, Leading Forecasters Agree";s:10:"field_ft_5";s:4:"none";s:10:"field_id_9";s:538:"As the overall U.S. economy continues to struggle, nonresidential construction spending is expected to decrease by 11 percent in 2009 in inflation adjusted terms. Commercial projects including office buildings and retail establishments will see the most significant decrease in activity. On the positive side, prices have dropped for key construction commodities. These are highlights from the American Institute of Architects (AIA) semi-annual Consensus Construction Forecast, a survey of the nation’s leading construction forecasters.";s:10:"field_ft_9";s:4:"none";s:11:"field_id_13";s:0:"";s:10:"field_id_7";s:14:"AIA, Consensus";s:10:"field_ft_7";s:4:"none";s:10:"field_id_8";s:10775:"<table border=\"0\" cellpadding=\"0\" cellspacing=\"0\" width=\"100%\">
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<p class=\"STORYsummary\">The
downturn in the economy will translate into a steep drop for the
nonresidential construction industry over the coming years.
Construction activity will see an 11 percent decline in 2009, followed
by an additional 5 percent drop in 2010. All the major commercial
sectors will be hard-hit by this downturn, with declines expected to
total between 25 percent and 35 percent for offices, retail facilities,
and hotels over 2009 and 2010. Industrial activity&mdash;manufacturing and
related distribution facilities&mdash;is slated to slow almost as much, with
a 20 percent decline over this period. Institutional facilities should
fare better, with two-year declines projected to run about 7 percent,
and less than 5 percent for health-care facilities.</p>
<p class=\"STORYsummary\">These
forecasts were compiled recently from the AIA Consensus Nonresidential
Construction Forecast Panel, comprising the leading national
nonresidential construction forecasters. As the U.S. economy has
deteriorated in recent months, their projections for construction
activity have been revised down sharply. Economic stimulus proposals to
revive our economy have concentrated on infrastructure investment and
other facility modernization programs. However, until the broader
economy recovers, the nonresidential construction industry is unlikely
to see any reversal in activity levels.</p>
<p><img class=\"image-left\" height=\"273\" src=\"/images/uploads/recession.jpg\" style=\"float: left;\" width=\"240\" />The AIA&rsquo;s
Architectural Billings Index (ABI) has been signaling a downturn in
nonresidential construction activity since the beginning of 2008. At
that point, though, the construction pipeline was full, so
nonresidential construction spending increased an estimated 8 percent
to 9 percent in 2008. Weakness in the overall economy has now caught up
with nonresidential construction, and few sectors are likely to avoid a
downturn this year.</p>
<p>Particularly hard hit will be
the commercial and industrial categories. With many businesses seeing
falling profits and difficulties in obtaining credit, expansion plans
have been put on hold until the economic outlook improves.
Institutional construction should fare better than its
commercial/industrial counterpart as the health-care and education
sectors are expected to continue to expand through much of this
downturn.</p>
<p><strong><span class=\"STORYsub\">Economic outlook has improved prospects for a federal stimulus program</span></strong><br /> The pessimism in the nonresidential construction outlook is the direct
result of the weak economic outlook. A recession in our economy began
in December 2007, according to a recent announcement by the National
Bureau of Economic Research, but in all likelihood the steepest part of
this downturn is still ahead of us. The first reading on fourth quarter
economic activity will be released at the end of January, and most
economists expect the decline will be at a 3 percent to 5 percent pace.
The last time our economy dropped by 3 percent for any single quarter
was 1981. The first quarter of 2009 will probably be almost as bad, and
our economy is unlikely to begin its recovery until later this year.</p>
<p class=\"STORYsub\"><strong>Construction Consensus Forecast&mdash;2010</strong><br /> <br /></p>
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<p>The
most obvious sign of the weak economy is payroll job losses. Payrolls
declined by 2.6 million in 2008, the worst year for job losses over the
past 60 years. Job losses pushed the national unemployment rate up to
7.2 percent in December, and have undermined consumer confidence. Even
with a modest rebound in December, in the fourth quarter of last year,
the University of Michigan&rsquo;s Consumer Sentiment Index produced its
lowest quarterly reading since 1980.</p>
<p>Although minor
compared to the magnitude of the downturn, some benefits have resulted
from the recent economic weakness. The drop in oil prices has helped
contain energy costs for households and businesses. Additionally, for
the construction industry, there has been a reversal in prices for key
construction commodities. Prices for steel and other metals, gypsum
products, lumber, and cement have all weakened recently, which will
help to stabilize construction costs and make more projects feasible.</p>
<p>The
Obama Administration is crafting an economic stimulus package to
cushion the economic downturn. While still under discussion, it appears
that this package will be large and broad-reaching in terms of areas
covered. Current estimates are that the total package will run at least
$750 billion over two years, and that it could rise to $1 trillion as
it works its way through Congress. Given that our economy generates
about $14 trillion a year in activity, this package would account for
about 3 percent of activity in our economy over this two-year period.</p>
<p>Most
elements of the evolving stimulus proposal generally fall in one of
five areas, each with distinct advantages and disadvantages to
stimulate our economy:</p>
<ol>
<li><strong>Tax cuts and direct rebates.</strong> These components can take effect quickly, while also providing ongoing
relief. A disadvantage is that they tend not to have as positive an
effect on long-term economic growth as other proposed components, in
part because households use some of these savings to pay down debt, and
some spending is for imported goods that do little to help our domestic
economy.</li>
<li><strong>Unemployment, health-care benefits, foods stamps, and other temporary programs.</strong> These &ldquo;safety net&rdquo; programs tend to help households in the most dire
economic conditions and that have been the most severely impacted by
the downturn. A downside is that they only provide temporary relief and
do little to help create longer-term economic growth.</li>
<li><strong>State fiscal relief.</strong> Most states are unable to deficit spend to help during a downturn
because of balanced budget provisions. Federal government grants can
help prevent counter-productive increases in state and local taxes.
Also, state and local governments could use these funds to provide
housing assistance to at-risk households from the subprime lending
crisis. To date, federal assistance has been provided only to banks and
Wall Street firms and not to households of people who have had their
homes foreclosed due to unscrupulous lending practices.</li>
<li><strong>Business investment incentives.</strong> For new jobs to be created, businesses will need to invest in new
plants and equipment. The credit crisis is making borrowing difficult
for many businesses. New investment incentives for businesses, however,
are unlikely to produce immediate job growth.</li>
<li><strong>Investments in infrastructure, education, health, and energy.</strong> In addition to technology investments and creating more incentives for
green investments, the construction and manufacturing industries are
targeted under current proposals. Construction accounts for about 10
percent of economic activity, but has borne more than 25 percent of job
losses in 2008. Jobs created in construction are domestic jobs, since
very few are outsourced. They also produce longer-term benefits and
help generate additional jobs through spin-off activity. Again, though,
timing is an issue, since many of these projects take time to launch.</li>
</ol>
<p><strong><span class=\"STORYsub\">Previous recessions point to significant downturn</span></strong></p>
<p>Architecture billings began to decline in early 2008 according to the
AIA, and construction contract awards for nonresidential buildings
began their descent about 4-5 months later, according to information on
construction starts from McGraw-Hill Construction. There have been
three major nonresidential construction recessions since 1980 as
defined by the value of construction starts:</p>
<ul>
<li> The early 1980s recession began in the first quarter of 1980 and lasted through the fourth quarter of 1982</li>
<li>The early 1990s recession began in the third quarter of 1989 and ended in the first quarter of 1993</li>
<li>The early 2000s recession began in the first quarter of 2000 and lasted through the first quarter of 2004.</li>
</ul>
<p>By
the end of 2008, nonresidential construction starts declined 7 percent
in inflation-adjusted dollars according to McGraw-Hill Construction
estimates. At this stage of the construction cycle, this decline is
comparable to previous major construction downturns. In the early 1980s
recession, activity had declined 8.6 percent three quarters into the
downturn, while the early 1990s recession generated an 18 percent loss
over a comparable period. However, the early 2000s recession generated
only a 4.5 percent drop at this point.</p>
<p>If this
recession plays out like previous ones, there still are significant
declines ahead. In the early 1980s recession, nonresidential
construction activity fell by almost 28 percent before growth resumed,
a figure exceeded in the early 1990s recession (31 percent) and almost
matched in the early 2000s downturn (25 percent).</p>
<p>However,
the composition of these losses was quite different in these cycles. In
the early 1980s recession, commercial/industrial activity dropped 34
percent while institutional facilities declined only 12 percent. The
early 1990s recession saw a more significant 48 percent decline in
commercial/industrial activity, but a milder downturn on the
institutional side with only a 7 percent drop. The early 2000s
recession was relatively mild for commercial and industrial activity,
which declined 29 percent, while quite severe for institutional
construction with a fall of 21 percent.</p>
<p>According to
the AIA Nonresidential Construction Forecast Panel, this downturn will
be structured more like the early 1990s recession, although hopefully
not as severe. This group is calling for declines of approximately 25
percent in 2009 to 2010 in commercial construction, almost 20 percent
for industrial activity, while only 7 percent for institutional
buildings. These projections predate the passage of any federal
stimulus program, and the ultimate implementation of such a program,
and the scope of activities covered if such a program is put into
action, will no doubt affect both near-term and longer-term trends in
construction activity.</p>
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