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The good-news-bad-news cycle continues to impose a ceiling on construction and, thus, demolition activity.

Brian Taylor May 6, 2013

Mixed signals have continued to emanate from the 24-hour news cycle, as one seemingly positive economic indicator is followed shortly by a more troubling statistic.

The instant financial news cycle and the way it can be presented has its critics. As economic recovery in most parts of the world, including the United States, occurs with an historically slow rebound, the messenger is sometimes blamed not for having the nerve to bring bad news but for delivering it on such a nonstop basis. The resulting uncertainty can grip even those with a good business plan, preventing them from having the confidence to start a construction project. From the lender’s side of the desk, approving loans in an uncertain climate can be just as vexing.

The first quarter of 2013 has displayed this pattern several times, for instance when a fiscal agreement in Washington, D.C., is soon followed by another looming deadline that inserts itself into the news cycle within a week or two.

For construction contractors, demolition subcontractors and the scrap recyclers who want more demolition scrap flowing into their yards, another year of slow growth in construction activity seems to be underway.


Cliffs and Sequesters

Contractors involved in the construction and repair of highways, bridges and the considerable number of government buildings in the U.S. spent the first quarter of the year watching the Obama administration and Congress wrestle with one fiscal deadline after another.

After lawmakers and the White House struck a deal shortly after New Year’s Day that avoided across-the-board tax increases and federal spending reductions, it was only weeks before a March 2013 “sequester” deadline on discretionary spending was again causing the Obama administration and Congress to take different positions on the merits of looming spending cuts.

As of late February, USA Today reported that the White House Office of Management and Budget had identified 150 places within its $1.04 trillion budget that “spending on domestic programs will be cut 9 percent and defense spending will be cut 13 percent with seven months remaining in fiscal 2013.”

The newspaper also quotes Jason Furman, deputy director of the White House National Economic Council, as saying, “Nationwide, hundreds of thousands of jobs would be lost,” adding, “The bulk of the job loss would be private jobs that are lost because of the reduced economic activity because of the sequester and the impact that would have on the entire economy.”

Estimates from the Congressional Budget Office predict that 750,000 jobs could be lost in 2013 if the spending cuts take place as planned. Contractors hoping to take part in rebuilding after Superstorm Sandy may be among those affected, as the $60.4 billion in emergency aid approved by Congress is “subject to sequestration and will be cut by almost $3 billion,” according to USA Today.

A Green Chute

Building owners, architects, engineers, contractors and subcontractors are likely to continue to be involved in projects striving to attain green building certification in 2013, which is good news for recyclers.

“Green building in North America will rebound strongly in 2013, in terms of LEED (Leadership in Energy and Environmental Design) project registration,” predicts Tucson, Ariz.-based Yudelson Associates, a consultant to the construction industry.

“Even with commercial and governmental projects proceeding at a lower level, there should be faster growth in green retrofits, with surging college and university projects, along with NGO (nongovernmental organization) activity,” the company’s Jerry Yudelson states in a January 2013 news release.

“It looks like a good year ahead for the green building industry,” he continues. “More people are building green each year, with 50,000 LEED projects underway [globally] by the latest counts; there is nothing on the horizon that will stop this megatrend or its constituent elements.”

Green building renovation and repurposing has grown the fastest, says Yudelson. “The fastest growing LEED rating system the past three years has been LEED for Existing Buildings Operations and Maintenance (LEED O+M), with cumulative floor area in these certified projects now greater than in new construction.”

In the midst of fiscal cliffs and sequesters, construction industry forecasters nonetheless tried to predict how things will play out in the sector for 2013.

In its annual forecast released in mid-January, the Associated General Contractors (AGC), Arlington, Va., states, “Significantly more construction firms are planning to add new staff than plan to cut staff, while demand for many types of private sector construction projects should increase this year, according to survey results.”

The AGC titled the report accompanying its survey results “Tentative Signs of a Recovery: The 2013 Construction Industry Hiring and Business Outlook.”

“While the outlook for the construction industry appears to be heading in the right direction for 2013, many firms are still grappling with significant economic headwinds,” says Stephen E. Sandherr, the association’s CEO. “With luck and a lot of work, the hard-hit construction industry should be larger, healthier, more technologically savvy and more profitable by the end of 2013 than it is today.”

Contractors appear increasingly optimistic that demand for certain private sector projects will expand this year, according to Sandherr. Firms are most optimistic about the outlook for hospital and higher education construction, he adds. Contractors also signaled optimism about the markets for power construction. On the other hand, they had lower expectations for manufacturing, private office and retail, warehouse and hotel construction. Contractors also anticipate that demand for many types of public construction will decline in 2013.

“A significant—but smaller than last year—number of contractors report that customers’ projects have been delayed or cancelled because of tight credit conditions,” the AGC report summary also states, noting that 40 percent of responding firms report that tighter lending conditions have forced their customers to delay or cancel construction projects.

“Unfortunately, there are almost as many causes for concern as there are signs of optimism,” says Ken Simonson, the association’s chief economist.


Disruption Deficit Needed
Avoiding the fiscal cliff provided a basis for the Portland Cement Association (PCA), Skokie, Ill., to increase its forecast for construction activity in the United States in 2013.

“PCA has upwardly revised its projections for the economy, construction activity and cement consumption for 2013,” the trade group announced on its website in January. “The upward revisions reflect adjustments made to our forecast in light of the recent fiscal cliff accord. According to this scenario, the near-term disruptive economic aspects associated with the fiscal cliff are significantly reduced. According to PCA’s new assessment, cement consumption is expected to grow at rates consistent with 2012 levels—perhaps stronger.”

In a Jan. 18 news release expanding on the forecast of its Chief Economist Ed Sullivan, the PCA says, “Improving underlying economic fundamentals, the existence of large pent-up demand balances and the diminishment of economic fiscal cliff uncertainty will combine to result in strong growth rates in 2013 and an increase in cement consumption.”

The revised forecast from the PCA predicts an 8.1 percent growth in cement consumption in 2013, significantly higher than the tepid growth projected in its fall 2012 report. The upward revisions, which imply a similar boost in concrete production, reflect “adjustments made in light of the fiscal cliff accord, recognition of stronger economic momentum and markedly more optimistic assessments regarding residential construction activity,” the PCA says.

The January report also referred to 2012 cement consumption in the U.S. at 78.5 million metric tons, up 8.9 percent compared with 2011.

“Growth in 2013 cement consumption will be largely driven by gains in residential construction,” says Sullivan. “Housing starts should reach nearly 950,000 units, with single-family construction near 700,000 starts during 2013. We see starts hitting the 1 million mark in 2014 or 2015.”

But the party is not quite ready to start, Sullivan cautions, adding that the first quarter of 2013 would actually show declines compared with the same period in 2012. “It is important to point out that this potential decline in first quarter growth rates does not signal a weakening in market fundamentals but rather a hangover from favorable 2012 weather conditions. Stronger gains in cement consumption growth are expected during the second quarter.”

The AGC is hopeful that this activity will increase employment in the construction sector as well. AGC says its survey results “provide a generally optimistic outlook for the year even as firms worry about rising costs and declining public sector demand for construction.”

Sandherr says 31 percent of the firms surveyed plan to add staff in 2013, while only 9 percent plan to lay off employees. Among the 30 states with large enough survey sample sizes, 56 percent of firms in Maryland plan to hire new staff this year, more than in any other state. Only 14 percent of firms in South Carolina plan to add staff this year, the least amount in any state.

Meanwhile, 37 percent of construction firms in Michigan plan layoffs for 2013, the highest percentage of any state. No firms working in Maryland reported plans to lay off employees this year. (Those interested in the AGC’s state-by-state survey results can visit http://news.agc.org/2013/01/11/2013-construction-hiring-and-business-outlook.


Uneasy on the Home Front
The residential construction market is emblematic of the on-again, off-again nature of the economic recovery. Although the sector enjoyed a small winning streak of several months of improvement in 2012, the gains were sometimes minor, and in January 2013 a decline in housing starts broke that streak.

February figures, however, revealed another increase in housing starts, with building permit volumes rising by 4.6 percent and single-family home starts rebounding with a 0.5 percent gain during that month.

In 2013, it appears contractors involved in this sector will again see modest improvements in activity at best.

Data collected and distributed by the U.S. Bureau of the Census show the number of new housing starts falling 8.5 percent in January 2013 compared with the month before. “It is the first major read on the state of the housing market in 2013, and, at first glance at least, it isn’t a very happy one,” reports the Washington Post as of late February.

In an analysis of the data, Neil Irwin of the Post says the news may not be as bad as it appears based on that one statistic. Winter weather in January may have kept the housing starts figure down, but a look at housing permits shows a rebound may yet be underway.

“The number of permits issued for new home construction actually rose in January by 1.8 percent to a 925,000 annual rate. That was stronger than the 1 percent gain analysts had forecast,” writes Irwin.

He also says December 2012’s housing starts number was such a big rise—“a revised 15.7 percent bump, even stronger than the 12.1 percent gain first reported”—that if one averages December and January to arrive at a 931,500 annual rate, this still indicates an upward trend from the 865,000 monthly average for October-November 2012.

The National Association of Homebuilders (NAHB), Washington, D.C., likewise points to positive trends in the face of the one worrying statistic. “In January 2013, single-family housing starts were virtually unchanged from an improved pace in the previous month, registering a 0.8 percent gain to 613,000 units,” the group declared in a late February news release. “This was the strongest pace of single-family housing production since July 2008. Meanwhile, multifamily housing starts, which tend to display significant month-to-month volatility, declined 24.1 percent to 277,000 units.”

“Today’s report is quite positive in that it shows continued upward movement in single-family housing production and permitting activity for both single- and multi-family units,” said NAHB Chief Economist David Crowe. “Meanwhile, the decline in multi-family starts reflects an adjustment from an unsustainably large gain in December and is consistent with the up-and-down swings that are often associated with that sector.”

Up-and-down swings, it seems likely, will continue to be part of the demolition and construction landscape in 2013. Scrap recyclers may see modest increases in demolition scrap but probably should not expect a record harvest.

 

The author is editor of Recycling Today and can be contacted at btaylor@gie.net.

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