The good-news-bad-news cycle continues to impose a ceiling on construction and demolition activity
The expansion of the financial media to include 24-hour television news networks and websites that are updated second by second provides copious amounts of information that should help bankers, traders and business owners to make informed decisions.
But the instant news cycle also 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.
Throughout 2013 this pattern has remained in place. One positive economic indicator is followed 24 hours later by a troubling one. An event that seems to bode well for stability is quickly followed by civil unrest elsewhere on the same continent.
Despite or perhaps because of the back-and-forth shifts between optimism and pessimism, the willingness of developers in the U.S. to invest in major construction (and demolition) projects in 2013 again seems to have a fairly low growth ceiling.
Sputtering but Starting
Contractors and scrap buyers involved in the construction and repair of U.S. highways, bridges and government buildings have watched the Obama administration and Congress wrestle with fiscal deadlines.
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 a matter of weeks before a March 1 “sequester” deadline on discretionary spending again caused the Obama administration and Congress to take different positions on looming spending cuts.
In the midst of fiscal cliffs and sequesters, the construction industry has nonetheless managed to achieve some modest growth in 2013. In June, the nation’s construction industry unemployment rate fell to 9.8 percent, reaching a low not seen since September 2007, according to U.S. Department of Labor statistics cited by the Associated Builders and Contractors Inc. (ABC), Arlington, Va. According to ABC, since June 2012 some 190,000 construction industry jobs have been created, leading to a 3.4 percent increase.
Nonresidential building construction employment has added 2.5 percent during the last 12 months, while residential building construction employment is up by 2.3 percent year over year.
ABC Chief Economist Anirban Basu calls the employment report “positive news for the nation’s construction industry” while also pointing to conditions that are adding some restraint.
“While the economy continues to face a number of headwinds, including most recently in the form of higher interest rates, the wealth effect associated with rising equity markets and home prices dominates the recovery,” Basu says. “The result has been steady expansion in consumer spending, which is associated with expanding job creation in closely aligned sectors of the economy.”
On the Money
The midyear results are in line with an annual forecast released in January 2013 by the Associated General Contractors (AGC), Arlington, Va. The AGC predicted that “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 in ,” based on results of an AGC survey of member firms.
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, AGC 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 led to delays or cancellations.
“Unfortunately, there are almost as many causes for concern as there are signs of optimism,” says Ken Simonson, the association’s chief economist.
Wait For It
After the fiscal cliff was avoided but before the sequester went into effect March 1, the Portland Cement Association (PCA), Skokie, Ill., improved its forecast for U.S. construction activity 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. PCA Chief Economist Ed Sullivan at that time predicted an 8.1 percent growth in cement consumption in 2013.
But in mid-May 2013, the PCA revised its 2013 cement consumption growth rate downward to a 6.2 percent increase. Sullivan says the construction industry’s three major sectors (residential, nonresidential and infrastructure) have not been able to gain momentum at the same time.
Sullivan says public construction will drag down cement consumption in 2013
“Recessions correct imbalances generated during boom periods,” he adds. “Few economists doubt the generation of a large pent-up demand during the past several years.”
Demolition contractors and scrap dealers can perhaps take heart in Sullivan’s longer range projections for 2015 through 2017. Annual cement consumption growth—which is tied to improved construction activity—during that period is expected to be as high as 11.1 percent.
The author is editor of Recycling Today and can be contacted at email@example.com. This article was excerpted from the March/April issue of Construction & Demolition Recycling, a sister publication of Recycling Today.