Thursday, July 21, 2011

Construction Economics - perspective of ABC's Chief Economist

From part of an article on ABC's web-site (Associated Builders and Contractors)....

Transition Toward a Private Construction Recovery

Since peaking in October 2008, the value of nonresidential construction put-in-place has declined 26 percent, according to the U.S. Census Bureau. Any signs of recovery in construction spending largely have been in publicly financed segments, such as highways and streets, conservation and development, and water supply. Privately financed activities have continued to tumble with the exception of data centers and energy-related investment.

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.

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