Gazing into the Crystal Ball
Trying to determine what the future holds? These three construction reports may give you the insight you need to predict the future.
U.S. Demand for Insulation to Approach $9 Billion in 2016
U.S. demand for insulation is forecast to rise 7.8 percent annually to $8.9 billion in 2016. Advances will be driven by a rebound in building construction expenditures from a depressed 2011 base. Further growth will be spurred by changes in building codes and continuing consumer interest in reducing energy consumption and utility bills. Home owners and building owners will add or upgrade insulation to achieve these goals. These and other trends are presented in Insulation, a new study from The Freedonia Group, Inc., a Cleveland-based industry market research firm.
The residential market will post the most rapid gains through 2016, advancing at a double-digit pace as housing starts rebound. Moreover, builders will construct homes with larger amounts of insulation to make them more desirable to potential buyers. Residential insulation demand will also be supported by the attic reinsulation and home improvement and replacement markets. Insulation demand in the nonresidential market will also see solid advances. Rebounding nonresidential building construction expenditures, particularly in the office and commercial segments, will promote gains.
Fiberglass insulation accounted for the largest share of insulation demand in 2011, with 48 percent of the market by value. Fiberglass insulation will remain the market leader in 2016, with demand rising 8.1 percent annually to $4.4 billion. Growth will be spurred by a rebound in the residential market. Fiberglass insulation remains a popular choice with builders and contractors because of its low cost, favorable insulative properties and ready availability.
Demand for foamed plastic insulation, which accounted for the second-largest share of the market in 2011, is expected to rise 7.3 percent per year to $3.9 billion in 2016. Advances will be driven by the rebound in building construction spending. Demand for radiant barrier and reflective insulation is anticipated to grow 8.7 percent per year to $190 million in 2016. The rebounding housing market will boost demand, with further gains supported by increases in industrial and nonresidential building construction spending. Growth will be concentrated in the South and West regions, as structures in those regions are more often exposed to sunlight, and thus best benefit from the use of radiant barriers and reflective insulation.
Insulation (published 03/2012, 331 pages) is available for $5100 from The Freedonia Group, Inc. For more information, visit www.freedoniagroup.com.
FMI Releases Nonresidential Construction Index (NRCI) for the First Quarter, 2012
Hiring Prospects and Construction-Put-in-Place Improve While Heavy Price Competition Continues
The NRCI gained 7.8 points over last quarter to 58.1 this quarter. This positive move to start the new year is not exactly the sign of a bull market for construction, but continuing confirmation that panelists believe that the construction activity is following the lead of the slowly improving economy. There are good signs in hiring plans for 2012, as well as construction-put-in-place predictions. However, panelists indicate that low project pricing and high competition are still driving the market place.
- Hiring: A five percentage points increase over this time last year, 42 percent of panelists indicated a zero to five percent increase in full-time direct employees. Additionally, fewer panelists indicated a reduction in salaried employees.
- Construction-Put-In-Place: Expectations for CPIP are positive but cautious, as 41.3 percent of panelists expect growth of 0.5 to 2.5 percent for 2012.
- Overall Economy: The component for the overall economy showed the strongest improvement of all index components, with a jump from 43.6 last quarter to 68.7 in the first quarter, a 25-point gain. This score reflects the improvement in many economic indicators including the unemployment rate.
- Nonresidential Building Construction Market Where Panelists Do Business: At just 54.9, the local markets for nonresidential construction are inching ahead. However, panelist responses reflect a perception that their own business is performing a bit better than the overall nonresidential construction market. This indicates that local markets are still very competitive.
- Cost of Materials: Despite a slow economy, material costs continue to rise, with no panelists indicating material costs were lower than last quarter. The cost of materials component moved down nearly 5 points to 26.2. This factor is continuing drag on the overall index and is likely to raise the cost of projects while lowering profit margins for contractors.
- Cost of Labor: The cost of labor improved just slightly to 41.5, indicating little change over the score of 40.0 last quarter. However, no panelists indicated they were experiencing lower labor costs.
- Productivity: Contractors are continuing to make moderate gains in productivity. However, at 52.9, this component is still too weak to offset rising costs for labor and materials.
For more information, visit www.fminet.com.
February Construction Falls 7 Percent
At a seasonally adjusted annual rate of $376.0 billion, new construction starts in February dropped 7% from the previous month, according to Robert Murray’s monthly report for McGraw-Hill Construction, a division of The McGraw-Hill Companies. The nonbuilding construction sector, comprising of public works and electric utilities, lost considerable momentum in February; and diminished activity was also reported for nonresidential building. Meanwhile, residential building in February was able to register modest growth. For the first two months of 2011, total construction starts on an unadjusted basis came in at $52.9 billion, down 14% from a year ago. For the 12 months ending February 2012 versus the 12 months ending February 2011, which lessens the volatility present in year-to-date comparisons of just two months, total construction starts were down 2%.
The February statistics lowered the Dodge Index to 80 (2000=100), compared to 85 in January. For 2011 as a whole, the Dodge Index averaged 91. “The pace of construction starts during the first two months of 2012 was subdued, retreating to the lower end of its recent range,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. “Renewed expansion for the construction industry is still struggling to take hold, with gains for a few project types such as ultifamily housing being outweighed by declines for project types that are largely publicly financed. This was especially the case in February, when much of the downward pull came from weakness for public works and institutional building.”
Nonresidential building, at $127.6 billion (annual rate), dropped 7% in February. A large part of the shortfall came from a 22% slide for educational buildings, continuing the descent for this category, which has been underway for the past three years. Public buildings (courthouses, detention facilities, and military buildings) weakened further in February, plummeting 46%. The healthcare facilities category in February decreased 9%, despite groundbreaking for a $335 million medical center replacement project in Joplin, MO and a $180 million hospital tower in Oakland, CA. The other institutional categories reported gains in February, including a 22% increase for amusement-related work, which was helped by a $105 million convention center expansion in San Jose, CA. Transportation terminal work in February advanced 45%, helped by the $78 million addition to Terminal B at George Bush Intercontinental Airport in Houston, TX and a $44 million renovation project at Grand Central Station in New York, NY.
On the commercial side, warehouses and hotels retreated in February, falling 8% and 47% respectively. Office construction improved 11%, reflecting such projects as a $106 million Social Security Administration building in Baltimore MD; a $75 million renovation to the U.S. Department of Commerce building in Washington, DC, and a $65 million corporate headquarters in Malvern, PA. Store construction in February was able to advance 35% from a weak January, aided by the start of a $300 million observation restaurant and entertainment venue in Las Vegas, NV. The manufacturing plant category in February increased 9%, boosted by a $99 million upgrade to a solar panel manufacturing plant in Portland, OR.
Residential building in February grew 3% to $140.6 billion (annual rate). Most of the upward push came from multifamily housing, which rebounded 10% after sliding back in January. Single family housing, up 1%, essentially held steady in February, due to a mixed performance by region?the South Atlantic, up 8%; the Midwest, up 5%; the Northeast, down 1%; the West, down 2%; and the South Central, down 3%.
The 14% decline reported for total construction on an unadjusted basis during the first two months of 2012, compared to 2011, was the result of a mixed performance by major sector. Nonresidential building dropped 17% year-to-date, reflecting this pattern? commercial building, down 9%; institutional building, down 15%; and manufacturing building, down 54%. Residential building climbed 20% year-to-date, with multifamily housing up 23% while single- family housing grew 20% from its very weak amount at the start of last year. Nonbuilding construction fell 33% year-to-date, due to a 20% retreat for public works and a 56% reduction for electric utilities. The size of the year-to-date decline for nonbuilding construction was affected by the comparison to elevated activity during the first two months of 2011, which included such large projects as a $2.5 billion solar power facility in California and $2.1 billion for work on the LBJ Freeway in Dallas, TX. By region, total construction starts in the first two months of 2012 showed an increase for one region, with the South Atlantic climbing 7%, while declines were registered by the other four regions?the Midwest, down 2%; the West, down 11%; the Northeast, down 21%; and the South Central, down 32%.
The 2% drop for total construction on a 12-month moving total basis, meaning the 12 months ending February 2012 versus the twelve months ending February 2011, was the result of this behavior by major sector?nonresidential building, down 3%; residential building, up 8%; and nonbuilding construction, down 10%. By geography, the 12 months ending February 2012 showed the following performance for total construction?the South Atlantic, up 13%; the West, up 3%; the Northeast and Midwest, each down 8%; and the South Central, down 12%.
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