With state and local government budgets in disarray and with the impact of federal stimulus spending winding down, the expectation is the pending recovery will be led by privately financed activities. Unfortunately, the construction of office space, hotels and shopping centers are not yet positioned for recovery. Vacancy rates in these categories remain too high to be associated with a significant acceleration in construction activity.
Rising materials prices also represent a headwind to construction recovery. For instance, in April, the Architecture Billings Index fell almost three points following several months of relatively good news, perhaps because rising and volatile materials prices are beginning to have a chilling effect on private development. Though Associated Builders and Contractors’ Construction Backlog Indicatorcontinues to show gradual improvement in backlog among firms, progress remains slow. The bottom line: Nonresidential construction should be fairly flat for the balance of 2011.