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Synopsis of RCD's webinar on the economic and construction outlooks

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Alex Carrick

Positions:
Alex Carrick is Chief Economist for CanaData, Reed Construction Data’s Canadian economic forecasting and statistical service.

Economists

The following are highlight observations from the Webinar hosted today by Reed Construction Data (RCD). Featured speakers were Ken Simonson (Associated General Contractors of America), Kermit Baker (American Institute of Architects) and Jim Haughey (RCD).

The following are highlight observations from the Webinar hosted today by Reed Construction Data (RCD). Featured speakers were Ken Simonson (Associated General Contractors of America), Kermit Baker (American Institute of Architects) and Jim Haughey (RCD).

The swing in U.S. gross domestic product growth will be from -2.5% year over year in 2009 to a range of +2.5% to +3.0% in 2010. 2011 will see a similar increase as in 2010. The recovery is established, but it will not be as vigorous as on similar occasions in the past. The overhang of unemployed workers is the problem. Seven million people remain without jobs in the nation.

Non-residential construction is the last part of the economy to turn around in a recovery. Construction job losses are now accounting for far more than their fair share of overall job declines. In the design professions, it’s not just the actual job cuts that are significant. There are also the earnings drops due to furloughs, shorter work weeks, unpaid vacations and the like.

The recovery in the design professions usually precedes job-site activity levels by nine months to slightly more than a year. Employment in engineering and architectural offices is expected to begin to recover by the end of this year’s second quarter or early in the third quarter. Therefore, non-residential construction will begin to improve in the second half of 2011. But it won’t be until 2012 that total construction activity is back to 2006 peak activity levels.

The first sector expected to show a pick-up will be single-family housing. Building permits in the singles category are already on the mend. Multi-family housing is still trending downward.

Non-residential building construction is mired in the doldrums. Office, hotel and retail projects are private financing-dependent, and easier funding won’t be forthcoming for a while yet. Among these categories, retail will show an improvement first. It always does. Smaller hotel projects outside Las Vegas may show some surprising re-birth. In institutional markets, sub-sectors that are able to borrow based on their bond and stock holdings are feeling better about their situation. But those sub-sectors that are mainly at the mercy of tax revenue will find capital projects hard to finance. New state budgets are concentrating on keeping workers and slashing public works.

As for regions of the country, the centre has been holding up better than the coasts. The centre Gulf States derive their strength from oil and natural gas activity. The prairie states get their sustenance from agriculture and from the fact that they don’t have much manufacturing.

Average hourly earnings in construction have dropped from a year-over-year high of +6.0% to a current level of +2.0%. Residential workers will recover earnings fastest. Material costs will stay muted throughout the year, except that there is an increasing risk of a substantial upward adjustment of some commodity prices due to expansions in China and other overseas markets.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News. Mr. Carrick also has a lifestyle blog that can be reached by clicking here.

by Alex Carrick last update:Jan 29, 2010

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