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Construction Outlook for 2011

March 11, 2011 Written by: Written by Jess Glidewell, Northern California RVP

Last week, economists from the American Institute of Architects, Associated General Contractors and Reed Construction Data teamed up to present their economic forecast for the remainder of 2011.  The information presented was sobering, particularly the statistic that while total private employment figures have improved, employment in the construction industry continues to decline, with a total national rate over 20% for two years in a row.

Architectural billings, one of the leading indicators for construction, have finally edged into growth territory, according to Kermit Baker of the AIA.  Baker went on to say that when architects were surveyed about their predictions for 2011, most were least optimistic about the institutional sector, and more optimistic about the outlook for commercial and industrial construction.  In conclusion, Baker stated that most architects expect construction spending in 2011 to be flat, with a move into a true nonresidential construction recovery in 2012.

Jim Haughey of Reed Construction Data stated that in his opinion, public construction funding will decline further in 2011, with a partial recovery in 2012. He added that state and municipal budgets are already tightening, and he expects it to be more serious in 2011 than in 2010. Construction in the power industry may increase because of environmental incentives, however Haughey expects that to ebb when Congress takes those incentives away. And he expects very little change in labor costs.

Haughey says credit is still a lingering problem in housing, but less for the economy as a whole.  “People will have trouble getting credit,” he said.  “That will be the issue, not interest rates.”

Lastly, Haughey remarked, “Construction is a local market.”  He points to the western point of the U.S. as still having the worst time with the recession, while the northeast and midwest are faring better.

Ken Simonson of the AGC echoed many of Haughey’s sentiments, saying, “State and local spending may be a drag on the economy in the immediate future.”  He cautions that while the House recently did vote to extend the Highway Tust Fund, neither highway nor airway trust funds are near reaching a long-term extension beyond this fiscal year, which could mean a big drop in spending.  Simonson says that public spending at state and local levels is already depressed, and that while state tax levels have recently been on the rise, this will not be sufficient to offset what local governments received from the federal government under the ARRA. He added, however, that about $8 billion in stimulus funds for highway projects still remains to be spent.

Simonson closed by saying the best news has been in power construction, and that the possibility of approvals for nuclear power plants could add to spending totals at the end of this year and into 2012.  He also sees the possibility for increased spending on coal-fired plants, gas-fired plants, wind, solar and transmission as the U.S. seeks solutions to rising foreign oil prices.

To listen to the archived webinar, register here.