Economist Sees Mixed Construction Picture in 2010

Washington, DC, Oct. 29, 2009--Ken Simonson, chief economist for the Associated General Contractors of America, struck a cautious tone last week about the state of construction during Reed Construction Data's 2010 construction forecast.

"I think, though, we have seen some changes for the better in the economy in the last 12 months. A year ago there was the total collapse of the bond market and the banks lending. Currently there has been quite a revival of bond markets for state and private activity bonds--the problem is that state revenues keep dropping [and] states are still cutting construction."

Simonson said the industry is getting a boost from the federal stimulus package.

"The stimulus is the largest piece of federal spending ever directed to construction in one bill," he said.

He noted that $135 billion was attributed to construction-related spending and about $35 billion of that was for buildings.

However, he said he hears constantly that building contractors say they've yet to see business from the stimulus.

"It's there, but it's just scattered through a wide range of agencies, and many of them were not prepared.

In spite of the stimulus money that has come out, he said that total construction spending is down 12 percent in the past 12 months. Of that private non-residential is down 10 percent; public construction is up 3 percent (party because of the stimulus).

"Private residential dropped very sharply until the spring and now it has leveled off and is beginning to pick up," he said.

Simonson said he expects a big increase for next year in single-family starts and totals should begin to top year-ago figures late this year. As far as multi-family, though, he does not see any growth until 2011.

For developer-financed non-residential construction, all segments are down about 25-45 percent compared to last year. The only one he sees hope for next year is improvement in retail, though it will be very low. All others are suffering from huge vacancy rates.

Next year, Simonson expects non-residential spending to be down as much as 5 percent; residential spending to be up 5 to 10 percent; total construction spending to be anywhere from -4 percent to +2 percent; materials costs to increase 0 percent to +8 percent and labor costs to increase about 3 percent, perhaps a little less.

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