ABC Forecasts 2010 Construction Activity Will See Winners and Losers

WASHINGTON, Nov. 9 /PRNewswire/ -- Associated Builders and Contractors (ABC)
today released its 2010 economic forecast for the commercial and industrial
construction industry. "While the industry battled the effects of the
recession in 2009, expect 2010 to be a transitional but sluggish year on the
road to recovery," said ABC Chief Economist Anirban Basu.

"Through late 2008, the industry held up well, but 2009 was a year of
retrenchment for many construction sectors, including those associated with
private development and municipal projects," said Basu. "Overall, the
nonresidential construction industry has been impacted by a combination of
financing constraints, massive job loss and a lack of confidence in local
economies across the nation due to falling tax revenues.

"However, the financial crisis that began in 2007 and deteriorated
significantly in September 2008 also led to the introduction of a variety of
policies designed to jump-start the economy, including the American Recovery
and Reinvestment Act of 2009 (ARRA), which is now beginning to support
water/sewer and road resurfacing construction projects," said Basu. "These
segments are positioned to be among the big winners in 2010. Segments that are
less closely aligned with federal spending are generally poised for another
rough year in 2010.

"One of the bigger beneficiaries of the American Recovery and Reinvestment Act
in 2010 will be the public sector. Public buildings - particularly courthouses
and federal facilities in need of modernization - will receive a sizable
increase next year due to stimulus funds reaching the market," said Basu.

"Despite forecasts for a subdued economic recovery and a relative scarcity of
nonresidential building construction during the next one to four years, rising
construction costs will be an issue due to a number of global factors,
including China's increasing demand for construction materials," said Basu.
"Construction firms should prepare for 4 percent to 6 percent growth in
construction costs per annum during the next several years, which is
considerably slower than the two-year average for 2008 and 2009.

Year-to-Date Performance: 2008 - 2009* and 2010 Forecast

Indicator 2008 2009 2010 % Change
2009-2010
Construction Put in Place - (millions, seasonally adjusted annual rate)
U.S. Census Bureau

Total Nonresidential
Lodging 35,818 23,060 20,100 -12.8%
Office 70,305 53,928 47,852 -11.3%
Commercial 84,942 53,827 46,582 -13.5%
Health care 47,699 47,933 48,500 1.2%
Educational 104,081 105,230 99,500 -5.4%
Power 81,801 90,489 92,328 2.0%
Manufacturing 61,269 73,582 59,600 -19.0%
Total Selected
Industries 450,097 424,989 394,362 -7.2%

Private Nonresidential
Lodging 35,379 23,006 20,014 -13.0%
Office 57,084 38,976 34,440 -11.6%
Commercial 81,495 49,861 43,184 -13.4%
Health care 39,101 37,178 37,634 1.2%
Educational 18,585 16,553 15,058 -9.0%
Power 68,702 76,233 80,758 5.9%
Manufacturing 60,784 72,980 59,181 -18.9%
Total Selected
Industries 325,751 291,781 279,182 -4.3%

Public Nonresidential
Office 13,222 14,953 13,412 -10.3%
Commercial 3,447 3,966 3,398 -14.3%
Health care 8,598 10,755 10,866 1.0%
Educational 85,496 88,677 84,442 -4.8%
Power 11,457 14,256 11,570 -18.8%
Total Selected
Industries 122,220 132,607 123,688 -6.7%

Construction Employment (thousands, not seasonally adjusted)
U.S. Department of Labor

Nonresidential 837.4 710.7 695.1 -2.2%
Residential 832.3 677.8 719.5 6.2%

Producer Price Index (base date: June 1986)
U.S. Department of Labor

Inputs to Construction Industries -
Index Value 197.2 189.1 193.1 2.1%

Gross Domestic Product (2005 $billions)
U.S. Department of Commerce

Real GDP 13,312 13,014 13,326 2.4%

* Latest Figures Available

The 2010 Outlook

We can now safely say that the recession is over. Thought to have begun in
December 2007 and likely concluded during the late summer of 2009, this
recession was in many ways the deepest since World War II and has impacted
every state and every metropolitan area, some more than others.

ABC has been highly pessimistic regarding the health of the nonresidential
construction industry in 2009. For the most part, these dire expectations were
met despite the passage of a massive stimulus package in February. As ABC had
predicted, contractors did enjoy some relief in the form of generally
declining materials prices, but this did not fully offset the impact of
diminished contracting opportunities, and many ABC members reported declining
revenues and shrinking backlogs throughout calendar 2009. The major exceptions
were those firms benefiting from federal project spending, working to help
retool major manufacturing establishments, and involved in America's expanding
energy complex.

Stimulus-related activity began to manifest itself first in ABC's proprietary
Construction Backlog Indicator (CBI), which was exhibiting large increases in
backlog among infrastructure-oriented firms as early as May 2009. Steadily,
backlog has been translating into actual construction spending. This will
continue well into next year and perhaps beyond, which is why infrastructure
firms report the most rapid increase in backlog among the three industry
groups ABC monitors.

The industry's general downturn has been neatly reflected in employment
totals. During last year's forecast, ABC noted that "while nonresidential
construction employment was down 4.7 percent on a year-over-year basis in
October (2008), this level of job loss pales in comparison to what is likely
to emerge over the next 12 months." Unfortunately, ABC's prediction was
correct. During a recent twelve-month period, nonresidential building
construction employment was down 13.3 percent while heavy and civil
engineering construction was down 12.6 percent. The forecast for 2010 is for
nonresidential construction employment to be down in the mid- to high single
digits on a year-over-year percent change basis.

One of the more positive aspects for contractors has been declining
construction materials prices. Relative to prior years, materials prices have
been stable, permitting contractors to submit bids on long-term projects with
greater confidence. Between August 2008 and August 2009, nonresidential
building producer prices declined nearly 8 percent, with copper ore prices
falling 32 percent and softwood lumber prices off 9 percent. The outlook is
for materials prices to be roughly flat next year, though a sharp downturn in
the dollar could generate increases even in the presence of a still weak U.S.
construction economy.

Commercial, lodging and office construction spending will be off significantly
next year as office vacancy rates continue to rise and hotel occupancy rates
continue to fall. Though consumers have bounced back in meaningful ways in
recent months, retail activity will remain subdued and the appetite for new
retail space will remain at extraordinarily low levels with the exception of
rebounding big box store construction.

Construction related to manufacturing will decelerate sharply. Previous years
have represented a period of brisk retooling activity, and it is unlikely that
this pace of investment can be sustained. ABC projects that construction
related to manufacturing will be off 19 percent in 2010.

Institutional construction, including hospital construction, will be soft due
to depleted state and local budgets and significant pressure to contain health
care costs. However, state governments will continue to receive substantial
support from the federal government over the next year, which will help
stabilize capital budgets. Once federal support ebbs, institutional
construction may weaken further in years to come.

Associated Builders and Contractors (ABC) is a national association with 79
chapters representing 25,000 merit shop construction and construction-related
firms with two million employees. Visit us at www.abc.org.

SOURCE Associated Builders and Contractors

Gail Raiman, +1-703-812-2073; or Gerry Fritz, +1-703-812-2062, both of ABC