Mid-year brought a spate of construction economic news as economists and business leaders revisited 2008 forecasts and made early predictions for 2009.
The conclusion seems to be that while the Washington State commercial construction industry continues to fare better than much of the country the near future looks a bit muddled. Meanwhile the cost of construction materials continues to rise.
On the national scene FMIs Second Quarter 2008 Report notes The outlook for 2008 remains much the same. However the outlook for 2009 has been revised down slightly because a downturn in nonresidential construction usually lags a slow down in the general economy…While the general economy might be beginning to stabilize somewhat nonresidential construction is expected to falter late in 2008 and into 2009… The decline in 2009 will be driven by a decrease in nonresidential construction for the first time since 2003.
Highway water and other infrastructure construction appears as a particular bright spot on the 2009 horizon according to FMI. This sector is expected to increase by six percent nationally in 2009. Meanwhile the non-residential building sector is expected to decline by five percent with particularly large hits to the lodging office and commercial segments.
To see the full report including national forecasts by industry segment click FMIs Construction Outlook – 2nd Quarter 2008.
As reported in a recent Seattle Times article AGC members Bryce Taylor of Lease Crutcher Lewis and Jack Beaudoin of Turner Construction had relatively upbeat assessments for local construction markets. FMI expects a two percent drop in non-residential construction in 2009 for the Seattle area – not great but still better than the national average. In the Times article AGC Labor Relations Director Doug Peterson noted another sign of slowing growth – longer waits for workers in union halls. A lot of these guys are not going out on jobs he said. There was a point at which if you could breathe you could get a job. Now the pressure seems to be off. There are people in the (hiring) hall.
To see the complete Seattle Times article click Tale of two construction sectors – one still booms the other doesnt.
With regard to costs FMI notes Rising general inflation plus some rapidly rising material costs could become perilous for nonresidential construction. Steel prices continue to rise and copper prices remain elevated.
AGC of America Economist Ken Simonson also notes the inflation trends. In his recent Data Digest Simonson reports:
The producer price index (PPI) for finished goods jumped 1.4% in May seasonally adjusted and 7.2% compared to May 2007 the Bureau of Labor Statistics (BLS) reported. The PPI for inputs to construction industries comprising materials used in every type of construction plus items consumed during construction such as diesel fuel soared 2.6% and 8.4% not seasonally adjusted. Among construction segments the biggest leap was for highway and street construction 4.0% and 15% followed by other heavy construction 3.5% and 13%; nonresidential buildings 2.6% and 8.7%; multi-unit residential 1.9% and 6.3%; and single-unit residential 1.6% and 4.7%. The highway PPI was propelled by surges in the PPIs for diesel fuel 9.1% and 76%; asphalt paving mixtures and blocks 5.1% and 10%; and hot-rolled steel bars plates and structural shapes 11% and 23%.
For a copy of Simonsons inflation data click PPI for construction materials and components.
Simonson also gathered some interesting anecdotal information about the effect of rising prices. From his recent Data Digest report:
Readers have sent in many announcements of price increases since PPI data was gathered in mid-May. A Chicago-based contractor received notices on June 16 of an August 1 increase in asphalt prices that ‘is projected to be $10-12 per ton…but could possibly go higher and a July 1 increase in drywall prices of ‘approximately 10%. A Memphis-based contractor wrote on June 13 ‘our AC [asphalt cement] prices went to $550 today and we were told to expect $600 next week. Also indicated that we should be bidding $700 for the rest of the year (sigh). The high prices for scrap steel have led to thefts of steel from construction sites. The Chicago Tribune reported on June 2 ‘state police were monitoring areas of the Reagan Tollway at 9 p.m. Sunday because of recent reports of stolen materials from Tollway construction sites an assistant states attorney said. ‘Police said they [arrested two men whom they saw] loading a rental truck with 17 steel forms worth an estimated $5000…both men told police that they believed the materials were scrap.
To read Simonsons weekly reports on the AGC of America website click Data Digest.