Economists, Construction Firms See Improving Market in 2011
November 4, 2010
Last year at this time, almost everyone related to the construction industry couldn’t wait for 2009 to end. Now we’re nearing the end of 2010, and the industry hasn’t rebounded as well as many people had expected.
Still, positive signs point to improving conditions next year. One is a survey of small businesses released last month by payroll service provider ADP, which shows construction being the hardest hit of the eight industries in the research.
The research states that 89% of the 116 construction companies surveyed reported an extremely negative or somewhat negative impact of the economic climate in 2008-2010. None reported an extremely positive impact; 8% percent each responded that the economy had no impact or a somewhat positive impact.
Looking ahead to the next 12 months, though, 39% of the same companies said they expect their businesses to expand moderately, and 3% even forecast a significant expansion of businesses. Another 30% expect no change.
The more positive outlook falls in line with forecasts made during the Metals Service Center Institute’s 2010 Economic Summit, held in September in the Chicago area. A panel of economists there all agreed recovery is underway. They said 2011 will be better than 2010, and we don’t have to worry about a double-dip recession.
Northern Trust Co. Chief Economist Paul Kasriel, one of the panelists, observed that July and August saw the first increase in bank lending in 29 months. He predicted that trend to continue and banks to return to their prior peak in lending volume by the first quarter of 2011.
Another panelist, Ken Simonson, chief economist for the Associated General Contractors of America, said he expects AGC members to see a recovery soon, although mostly for renovations rather than new construction. Businesses will not expand in commercial facilities until they begin hiring in a big way, and that will take awhile.
Simonson sees upward trends for spending on education facilities and hospitals. School construction at the lower grade levels, however, could be constrained by decreased municipal tax revenues tied to declines in home prices.
His forecast for 2011 is for residential spending to grow between 5% and 10%. Nonresidential spending will bottom out and begin to post modest gains. He forecasts total construction spending to grow between 3% and 7% in 2011.
Federal stimulus money will make a difference in some construction categories and will help moderate the downturn significantly, he said. Simonson also noted the price of many construction materials will increase sharply next year.
In a separate presentation in September, economist Brian Beaulieu spoke in Austin, Texas, to service contractors who belong to the Nexstar group. He said we’ll see recovery next year, and 2012 will be stronger than 2011.
Beaulieu also made these suggestions:
- Create a competitive advantage; identify what you do well
that your customers value, and do more of it.
- Evaluate the markets you’re selling to; be
- We’re going to hit another mild recession in 2014, so think about
services you aren’t selling today that you could sell in
- Be aggressive with your plans for the future; expand your
- Let go of the past and look toward the future.
Although they may be difficult to see right now, better days lie ahead. You should plan your business accordingly.