Total Construction in 2010 Down 4 Percent after Declining 13 Percent in 2009

FMI, management consultants and investment bankers for the construction industry, has released its Construction Outlook: Fourth Quarter 2009 Report. While 2009 was likely the bottom in terms of percent decline, 2010 will be the bottom in terms of dollar volume. Residential construction is expected to begin recovering in 2010. Nonbuilding construction will continue to be a positive contributor, increasing another 5 percent in 2010, driven mostly by conservation and development construction.

The economy may show some signs of improving, but it is just the beginning of the downfall for nonresidential construction. Nonresidential construction typically lags the general economy by about 18 months. Intense competition has been bringing down prices. This is good for owners, but not so good for contractors. Nonbuilding construction will remain positive for the forecast period, with power and conservation and development leading the sector.

The residential sector is expected to begin to recover in 2010. Single family put-in-place construction will recover at a slower rate than single family housing starts. The number of square feet per start is declining, meaning that new homes are getting smaller. They are also getting less expensive. The average and median new home sale price is decreasing.

Report highlights include:

• Commercial construction relies heavily on consumer spending and new housing construction. Consumer spending will not return to high levels until the employment situation improves. Commercial construction is not expected to pick up until 2012.
• Health-care construction will likely see a small increase in 2010 and 2011, remaining at a historically high level.
• Power construction has seen 4 years of phenomenal growth and is expected to remain positive for the next 5 years.
• Conservation and development construction is one of the few surprise winners from the stimulus bill.

For more information about FMI’s Construction Outlook: Fourth Quarter 2009, please visit www.fminet.com.

More Construction Firms Likely to Perform Stimulus-Funded Work in 2010 as Funding Expands Beyond Transportation Programs

Stimulus-funded infrastructure projects are saving and creating more direct construction jobs than initially estimated, according to an analysis of federal data released by the Associated General Contractors of America. The analysis also found that more contractors are likely to perform stimulus-funded work this year as work starts on many of the non-transportation projects funded in the initial package.

“The stimulus is one of the very few bright spots the construction industry experienced last year and is one of the few hopes keeping it going in 2010,” said Ken Simonson, the association’s chief economist. “The stimulus is saving construction jobs, driving demand for new equipment, and delivering better and more efficient infrastructure for our economy.”

Simonson noted that new federal reports show the $20.6 billion of stimulus highway projects initiated over the past 12 months have saved or created nearly 280,000 direct construction jobs. That amounts to 15,000 jobs per billion dollars invested, well above pre-stimulus estimates that every billion invested in infrastructure projects would create 9,700 direct construction jobs.

The economist added that heavy and civil engineering construction employment was stable last month even as total construction employment declined by 75,000. Meanwhile, highway and road construction was one of the only areas to see an increase in spending last year even as total construction spending fell by $100 billion. The two figures are a clear sign the stimulus is having a significant, and stabilizing, impact on the industry, Simonson noted.

Simonson cited examples like Pittsburgh’s Golden Triangle Construction Co. as an indication of the benefits of investing in infrastructure. The company is hiring two new engineers and more than 100 employees this spring just to perform $24 million of stimulus-funded projects this year.

It also is ordering new construction equipment to perform the work from Ripon, California–based Guntert and Zimmerman. As a result, the equipment maker saved 40 jobs on its assembly line. And thanks to its stimulus work, Golden Triangle decided to complete construction of its delayed headquarters, providing even more local construction jobs.

Simonson cautioned, however, that overall declines in construction activity have and likely will continue to overshadow the benefits of the stimulus. “The stimulus will keep a bad situation from deteriorating further,” Simonson said. “That may not make for great headlines, but it is welcome news for construction workers anxious to continue receiving paychecks.”

Construction Market to Increase 11 Percent in 2010, Says McGraw-Hill Construction Outlook Report

McGraw-Hill Construction, part of The McGraw-Hill Companies, has released its 2010 Construction Outlook, a mainstay of business planning for construction and manufacturing executives, which forecasts an increase in overall U.S. construction starts for next year. Due to improvement for housing from extremely low levels and broader expansion for public works, the level of construction starts in 2010 is expected to climb 11 percent to $466.2 billion, following the 25 percent decline predicted for 2009.

“The U.S. construction market in 2010 will be helped by growth for several sectors, following 3 straight years of decline that brought total construction activity down 39 percent from its mid-decade peak,” said Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. “The benefits from the stimulus act will broaden in scope, lifting not just highway construction but also environmental public works and several institutional structure types. With continued improvement expected for single family housing, after reaching bottom earlier this year, the overall level of construction activity should see moderate expansion in 2010.”

Highlights of the 2010 Construction Outlook include:

• Single family housing for 2010 will advance 32 percent in dollars, corresponding to a 30 percent increase in the number of units to 560,000 (McGraw-Hill Construction basis).
• Multifamily housing will improve 16 percent in dollars and 14 percent in units, after steep reductions in 2008 and 2009.
• Commercial buildings will drop 4 percent in dollars, following a steep 43 percent drop in 2009. The weak employment picture will further depress occupancies, making it even more difficult to justify new construction.
• Institutional buildings will begin to stabilize after losing momentum in 2009. Square footage will retreat another 2 percent after sliding 23 percent this year. The dollar amount of construction for this sector will edge up 1 percent, helped by a growing amount of energy-efficiency upgrades to federal buildings and continued strength for military buildings.
• Manufacturing buildings will drop 14 percent in dollars and 3 percent in square feet, hampered by the substantial amount of slack manufacturing capacity.
• Public works construction is expected to rise 14 percent, given more wide-ranging strength across all project types.
• Electric utility construction will slip 3 percent, continuing to settle back after a record high in 2008.

The 2010 Construction Outlook was presented at the McGraw-Hill Construction Outlook Executive Conference in Washington, D.C., which brought together top management from all parts of the construction industry, including firms involved in building product manufacturing, architecture and design, contracting, engineering, and industry associations. At the event, Frank Giunta of Hill International and George Pierson of Parsons Brinckerhoff offered insights to an industry emerging from the crisis:

“The stimulus funds are meant to be just that, a stimulus, not the be-all-end-all answer to infrastructure financing,” said Frank J. Giunta, senior vice president and managing director of Hill International. “Both public and private sectors need to be innovative and rewrite the rules of project finance to address tremendous construction needs with minimal financing options.”

“The efforts of the federal agencies at transparency and their willingness to engage with private industry is refreshing,” said George J. Pierson, chief operating officer, Parsons Brinckerhoff. “We have to work together to meet the challenges of infrastructure and this economy.”

For more information on the 2010 Outlook or about McGraw-Hill Construction, visit www.construction.com or follow @mhconstruction on Twitter.