Commercial Construction Stirs Again

Chicago, IL, April 23--Signs of recovery are in place for the construction industry and a full recovery is expected in the non-residential sector in 2004, predicted Kermit Baker, chief economist for the American Institute of Architects, at the CSE Show in Chicago held on April 10. Because architectural firms are engaged in the early stages of the construction process, Baker used data, among other industry resources, taken from the AIA surveys conducted earlier in the year. Baker indicated that the economy appears to be moving along well despite the mixed signals and economic cycles being seen in the broader economy. Although the nation experienced a mild recession in mid-2001, the economy recovered surprisingly well. So well that by the third quarter of last year, the national economy was growing by more than 3%. At the beginning of fourth quarter the growth rate began to slump, which coincided with the growing threat of a war in Iraq. First quarter GDP numbers are expected later this month and it’s predicted that the economy will see slower growth in the first quarter of the year. According to Baker, there’s a new wave of cyclicality being seen in construction. Non residential construction has always been characterized by wide swings of activity from year to year. While the overall economy stays in a fairly narrow growth band, rarely seeing growth of 5%, double-digit rates of growth for construction are not at all uncommon. "As the broader economy turns to a greater cyclicality, we can expect greater swings in the construction sector moving ahead," Baker said. A recovery in construction activity can be expected later this year, due to the number of inquiries received by architecture firms of late. From a regional perspective, construction activity in the Northeast is volatile. It was strong early last year and has taken a substantial dip in recent months and is just beginning to see signs of recovery. Firms in the Midwest are reporting more stable levels of activity. The South has been the strongest region in recent years. The West, like the Northeast, has seen very volatile business conditions. It’s also been the region hardest hit over past years in terms of business conditions. However, recent numbers have been quite encouraging for firms in the West. In addition to general construction activity, Baker also reported on each sector in the construction industry. The commercial and industrial markets are projected to continue to be weaker than the institutional markets overall for 2003. The institutional sector has generated more optimistic signs according to U.S. architecture firms. More than a third of the firms rated health care as strengthening and 12% said it was weakening in the markets they serve. The overall institutional construction market saw a small gain last year, but will be essentially flat this year. In the residential sector, single-family construction is seen as modestly strengthening nationally, while the multi-family sector is weakening. It’s projected that the decline this year will be much smaller than what the industry saw last year. Overall, this year is shaping up as a transition year for the non residential construction sector. The commercial and industrial sectors are going through some changes that will ensure better numbers next year, while the institutional sectors are fighting their way through a funding problem caused by the stock market slump and government deficits. Still, the institutional sector should see relatively stable levels in construction for the remainder of 2003 and through 2004.

Print the Article