Recovery in Nonresidential Construction Sector Expected to Take Hold Mid-2011

 

Courtesy of AIA

A steeper than projected downturn this year will lay the groundwork for growth by the second half of next year, according to Kermit Baker, AIA chief economist

As we entered 2010, the AIA Consensus Construction Forecast Panel was downbeat on the prospects for the year, projecting a 13 percent decline in spending (inflation adjusted) for nonresidential building projects. Halfway through the year, prospects have deteriorated, with the current consensus predicting a 20 percent decline this year. The worst economic downturn in several generations, a fragile financial sector, excess commercial space and unease in the international economy all share the blame for the current situation.

However, the international economic outlook should produce construction opportunities this year. Domestic opportunities should begin to present themselves next year. Since it began to recover last summer, the U.S. economy has steadily improved, though it has seen a few speed bumps.

Our economy likely grew about 3 percent in the second quarter (inflation adjusted and annualized) and likely will grow at about the same rate for 2010 as a whole. While this is close to the typical growth rate for the U.S. economy over the long-run, it is disappointing for the first year of a recovery where we generally see a more substantial surge.

Economic growth, however, will not accelerate until the employment situation sees a significant improvement. Through the first half of the year, only 880,000 payroll positions have been added and a disappointingly small share have been private sector jobs.

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. Unfortunately the slump in construction has adversely affected the landscape industry and it could take many more years to fully recover.

– Courtesy of AIA