Dr. William F. Ford
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The forecast for the new construction market — residential and low-slope — is not encouraging, according to Dr. William F.
Ford, Weatherford Chair of Finance at Middle Tennessee State University and former president of the Federal Reserve Bank of
Atlanta. In addition, increasingly tight immigration policies will have a significant effect on the U.S. labor market and
will hit the roofing and service industries particularly hard.
Ford shared a less rosy outlook for nonresidential construction at SPRI's 26th annual conference in Tucson, Ariz., Feb. 7-10.
SPRI is the leading association representing material and component suppliers to the commercial roofing industry.
"The overall outlook for the nonresidential construction industry is still positive but weakening," Ford said.
The conclusions of Ford's research for SPRI include these key factors:
- Although the U.S. GDP has been growing since 2001, growth will be much slower in 2008.
- Housing trends, sub-prime mortgage problems, and high energy prices are slowing GDP growth the most.
- Corporate profits and spending growth are slowing, which are key indicators that the number of nonresidential construction
projects will drop this year.
- The Federal budget deficit was shrinking but will rise soon — no matter who becomes President in November, according to Ford.
- The U.S. trade deficit remains large and troublesome.
(See the chart for Ford's 2008 AIA construction panel forecast.)
The weakness in the overall U.S. economy is translating into a tempered forecast for new multi-family construction as well.
"The 2008 construction forecast is generally positive, and many sectors of the construction industry will remain healthy despite
the continuing drag of the housing downturn," Heather Jones, construction economist for FMI's research services, said.
A second opinion
Ken Simonson, chief economist for the Associated General Contractors of America (AGC), gave a different opinion on nonresidential
construction when interviewed by RSI in late January.
"Nonresidential construction employment eked out a small gain in January, implying that the spending rise of 2007 will continue,"
Simonson said.
The economist was commenting on two government reports — January payroll employment from the Bureau of Labor Statistics (BLS)
and December construction spending from the Census Bureau.
"A 3.5 percent jump in employment of architects and engineers since January 2007 also suggests that nonresidential activity
will remain positive."
Total construction employment fell by 27,000 in January, seasonally adjusted, but all of those losses occurred in residential
building and specialty trades, Simonson said. "Employment in the three nonresidential categories — nonresidential building,
specialty trades, plus heavy and civil engineering — edged up 1,300.
"The reality is a good deal better for nonresidential construction employment than BLS indicates," Simonson said. "Census
figures for December show nonresidential construction spending jumped almost 16 percent from a year earlier, which could only
have occurred with a sharp rise in employment."
In December 2007 residential construction fell 20 percent from a year ago. That suggests residential employment probably fell
by roughly 20 percent as well, or 660,000 jobs — not the 240,000 that BLS counted.
If these 420,000 "residential" specialty trade contractors were included in the nonresidential workforce, nonresidential construction
employment for the past year would show a hefty gain of about 8 percent.
The bottom line is the Census numbers show growth, mostly at double-digit rates, in 15 of 16 nonresidential categories. Unfortunately,
material costs are rising, particularly diesel fuel, which is putting a damper on economic growth.
