economic downturn has taken its toll on construction, but construction
has not been the only sector to soften. Manufacturing activity
also has been very weak, not only because U.S. consumers are buying
fewer manufactured goods, but also because the recession has spread
internationally, so U.S. manufacturers are selling fewer goods
abroad. The high-profile casualties of this manufacturing downturn
have been U.S. automakers: domestic auto and light-truck sales
dipped from almost 16 million in 2005 to just over 13 million last
year, and in all likelihood to under 10 million this year.
As the economy has declined, business payrolls have shrunk. Our
economy has lost six million jobs since this recession began, and
almost three million through May of this year alone. The construction
industry has taken some of the steepest losses. Though the construction
industry accounts for just over 5 percent of all payroll employment
in our economy, it has absorbed over 20 percent of job losses since
the national economic downturn began. Architecture firms have been
similarly hard hit. From peak employment levels of last July through
April of this year, architectural firms have lost almost 31,000
positions, or almost 14 percent of total employment at firms.
Even with the deep declines that our economy has absorbed in recent
quarters, there are signs that we may be beginning to emerge from
this downturn. The housing market is finally showing signs that
is nearing—or may even have reached—its bottom. Falling
house prices and favorable mortgage rates are luring buyers back
into the market. Both new and existing home sales have seen a noticeable
increase since the beginning of the year. Even homebuilding levels
seem to be slowly edging back up, but given the large inventory
of unsold homes in the market, coupled with still-growing foreclosures
that are adding back homes to this inventory, we’re unlikely
to see much of a rebound in new residential construction in the
In spite of step job losses and the national unemployment rate
at its highest level since the early 1980s, consumers are starting
to feel better about the economic outlook. Consumer sentiment scores
have risen by almost 14 points or about 25 percent from their low
of last November through this June, according to the University
of Michigan’s Consumer Sentiment index. Households are even
beginning to save again, although probably this has been motivated
by concern over the uncertainty of the future, and by the desire
to rebuild losses from falling retirement accounts and home values.
Still, the savings rate was just half a percent as recently as
2007, and it is likely to rise to about 5 percent this year.
With a weak economy, the cost of goods and services has been edging
down. Largely due to falling energy costs as compared to year-ago
levels, consumer prices are down a percent from year-ago levels,
while producer (wholesale) prices are down almost 5 percent. This
is proving to be a fortuitous development for prospective building
owners and developers, as a market basket of materials used in
nonresidential buildings is off 6 percent from year-ago levels,
according to calculations from the U.S. Department of Labor. Paced
by steep price declines for petroleum and petroleum products as
well as metals (steel, copper, and aluminum are off 20 percent
or more) and lumber and plywood (off 14 percent), it is generally
thought that most building commodity prices will begin moving back
up once construction activity starts to increase.
Nonresidential building activity poised
for further declines
There are signs that our economy is on the mend. However, nonresidential
construction activity tends to lag behind the rest of the economy,
so it will be a while before this industry sees any improvement.
The AIA’s Consensus Construction Forecast Panel projects
that nonresidential construction activity will decline almost 16
percent this year once inflation adjustments are made, and another
12 percent next year. If these numbers materialize, this would
be the most significant downturn in nonresidential construction
in more than a generation.
Commercial facilities are slated to bear the brunt of the downturn.
Overall commercial construction is forecast to decline 25 percent
this year and another 15 percent in 2010. The hotel market, which
may have been a bit overheated heading into the downturn, may take
the biggest hit through 2010, but retail construction and offices
won’t be far behind. Industrial construction also will see
a dramatic decline through 2010, with reduced demand domestically
for manufactured goods as well as fewer manufactured exports due
to an international slowdown. Panel members are divergent in their
projections for this year due to different methodologies in developing
estimates of activity from projects carried over from prior years.
Institutional construction markets should fare a good deal better.
Total institutional construction is expected to decline just 6
percent this year and another 2.5 percent next year as stimulus-funded
projects for schools, health care, and government facilities begin
to kick in. Health-care construction (hospitals, clinics, nursing
homes, etc.) is projected to decline hardly at all this year and
next, while spending on education facilities (public and private,
including higher education) should fall about 8 percent this year
as continued problems in lending markets limit financing options
and stock market declines hurt the endowments of private educational
institutions. However, education construction should hold its own
by 2010. Spending on government buildings is one of the few nonresidential
sectors where spending is expected to continue to grow this year.
Stimulus program spending will help to cushion the downturn in
the institutional sector, but will do little to help with commercial
or industrial facilities. Funding allocations to the public works
construction sector for activities such as streets and highways,
bridges, water and sewer, and conservation projects are significant,
but they are much more modest for buildings. Residential and nonresidential
building stimulus projects are estimated to total as much as $35
to $40 billion over the next two years. For a $400 billion a year
sector, spending at this level will help, but unfortunately not
much for the private side of the market.