Tuesday, August 3, 2010

Consensus Construction Forecast

One of the more interesting articles, at this point (mid-point) in 2010, is the “Consensus Construction Forecast” article authored by Kermit Baker, Chief Economist of the AIA. This article was posted on the AIA web-site on or around July 16, 2010.

What makes this article interesting is that it is a compilation of different forecasts from several different analytical/research companies and economists who follow the AEC Industry and takes into consideration comments made in Federal Reserve Board Beige Book Reports.

The analysts/economists who participated in the "panel" survey included:
Bob Murray of McGraw-Hill Construction
Scott Hazleton of IHS-Global Insight
Mark Zandi of Moody’s Economy.com
Heather Jones of FMI
Jim Haughey of Reed Construction Data

At the end of this point, I will post the Internet address of the full article, but, right now, I’d like to pull out some of the points made in that article.

* “As we entered 2010, the AIA Consensus Construction Forecast Panel was downbeat on the prospects for the year, projecting a 13% decline in spending (inflation adjusted) for nonresidential building projects. Halfway through the year, prospects have deteriorated, with the current consensus predicting a 20% decline this year.”

* “However, the international economic outlook should produce construction opportunities this year, and domestic opportunities should begin to present themselves next year.”

* “The construction sector continues to be a major drag on the economy, as payrolls in this industry have declined by 114,000 so far this year.”

* “The overall improvement in the economy has not yet turned around the nonresidential construction sector. Commercial property values nationally have fallen more than 40% from their mid-2007 high through the first quarter of this year ….. Until values recover, however, the risk of commercial mortgage defaults remains a serious concern and limits the demand for new construction activity since lower-priced existing facilities are generally considered a more attractive investment than building new ones.”

* “In spite of weak construction levels, weak demand is still pushing up vacancy rates. Reis, Inc., a real estate research firm, recently reported that U.S. office vacancy rates rose in the second quarter this year, and were approaching 18%. ”

* “The Federal Reserve Board’s Senior Loan Officer Survey on Bank Lending Practices still points to restrictive lending conditions for commercial real estate loans.”

* “Our construction forecast panel expects the weakness in the construction sector to continue well into 2011. Overall, they see nonresidential construction spending declining by just over 20% this year, with declines running close to 30% in the commercial sector, over 20% for manufacturing facilities, and even 12% for institutional buildings.”

* “Next year is projected to finally show some relief in the construction sector. The consensus for overall spending growth in nonresidential buildings is just over 3%, with more than 5% in the commercial sector, a 2% decline in manufacturing facilities, and 4% growth for institutional buildings.”

The Internet address of the full article:

And, the Internet address at which you can find the individual and consensus forecasts:

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Joel’s comment:

For those who are predicting a continuing problematic situation in the U.S. Construction economy the remainder of this year, but a recovery beginning next year (2011), all of us should know, by now:

a) there will, at some point, be a recovery,

b) but, as to when the recovery will begin to happen, that’s simply a SWAG on everyone’s part. I guess one could say that everyone who guesses has a least a 50-50 chance of being right. Almost the same odds as playing black or red at the roulette wheel in Vegas!

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