May 9, 2003—Signs of recovery are in place for the construction industry and a full recovery is expected in the non-residential sector in 2004, predicts Kermit Baker, chief economist, American Institute of Architects. Baker used data, among other industry resources, taken from the AIA surveys conducted earlier in the year.
Speaking at Reed Construction Data’s 8th Annual CEO Breakfast at the recent CSI Show in Chicago, Baker asserted that there is a new wave of cyclicality that is 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. Now, as the broader economy turns to a greater cyclicality, Baker predicts there will be greater swings in the construction sector.
A recovery in construction activity can be expected later this year, due to the number of inquires 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 terms of construction activity in recent years. The West, like the Northeast, has seen very volatile business conditions. It also has 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. According to Baker, 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 US architecture firms. More than a third of the firms rated healthcare 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.
Overall, 2003 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.
For a more comprehensive forecast for the 2004 North American construction economy, Reed Construction Data will hold its annual North American Construction Forecast conference in Washington, D.C. on October 15, 2003. For more details about this conference, please visit NACF or contact Racquel Wright at 770/209-3652.
