UPDATE 1-U.S. architects group cuts construction forecast

Wed Jul 27, 2011 12:37pm EDT

Related Topics

* Sees U.S. construction spending down 5.6 pct in 2011

* Sees 2012 rebound led by hotel sector

* Tight credit, govt budget shortfalls depress spending

NEW YORK, July 27 (Reuters) - An architects' trade group cut its 2011 U.S. construction forecast on Wednesday, citing tight credit conditions, government budget shortfalls and a depressed housing market.

The American Institute of Architects (AIA) said it now expects spending on nonresidential construction projects to fall 5.6 percent this year before rebounding in 2012. In January it forecast a 2 percent decline this year.

"Consumer and business confidence is poor and the overall economy has yet to pull out of the downturn that began in 2008, which both add to the general sense of anxiety and uncertainty in the real estate market" said AIA Chief Economist Kermit Baker.

"The depressed demand for new construction isn't likely to improve until next year, led by the commercial sector: offices, retail and hotels."

Overall nonresidential spending is expected to rise 6.4 percent in 2012, the group said, a slightly stronger recovery than it forecast six months ago.

The AIA publishes a widely cited index of architecture billings that is considered a leading indicator of construction spending up to a year ahead. The billings index has been below 50, indicating contraction, for three consecutive months, after recovering earlier in the year. [ID:nN1E76J08K]

The AIA Consensus Construction Forecast Panel is conducted twice a year with leading nonresidential construction forecasters, including McGraw Hill Construction, IHS-Global Insight and Moody's economy.com.

NEW HOTELS IN 2012?

Construction of hotels and industrial space is forecast to fall by double digits this year, while smaller declines are forecast for the office and retail sectors.

But in 2012, spending on hotel construction is seen rising 18 percent. AIA said spending on factories and other industrial buildings will rise 8.4 percent; office buildings up 9.8 percent; and retail up 11.8 percent.

The AIA forecast more modest recoveries next year in institutional categories that include churches, schools and healthcare facilities.

A weak U.S. construction market has been a source of frustration for multinational manufacturers that sell machinery to erect buildings or components such as elevators and cooling and security systems. Many industrial names stand to gain once a full-fledged construction recovery finally gains momentum.

U.S. construction spending fell for a sixth straight month in May to its lowest level in more than a decade, according to a government report. June figures due on Monday are forecast to be flat. [ECI/US]

Companies exposed to the sector include Honeywell International Inc (HON.N), Tyco International Ltd (TYC.N), Ingersoll Rand (IR.N), Johnson Controls (JCI.N), Eaton Corp (ETN.N), Caterpillar Inc (CAT.N), Emcor Group (EME.N) and Terex Corp (TEX.N).

European companies such as Siemens AG (SIEGn.DE), Schneider Electric SA (SCHN.PA) and lock maker Assa Abloy (ASSAb.ST) are also big players in the sector.

Industrial shares in the United States and Canada were down sharply on Wednesday after leading conglomerate Emerson Electric warned of slowing growth in major economies. [ID:nN1E76Q04X] (Reporting by Nick Zieminski; editing by John Wallace)

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