US construction recovery delayed - McGraw-Hill

Wed Oct 19, 2011 11:06am EDT

Related Topics

* U.S. construction spending seen at $412 bln in 2012

* Risk of recession higher: McGraw-Hill Construction

* Construction rebound pushed back at least a year

* Government spending cuts a key impediment to recovery

By Nick Zieminski

Oct 19 (Reuters) - New spending on U.S. construction, which has fallen in four of the past five years, is forecast to remain flat next year at about $412 billion, pushing back an expected recovery in the sector by another year, according to a widely-followed forecast.

The estimate, by McGraw-Hill Construction, predicts gains in some construction sectors, such as single-family housing and apartment buildings, as well as commercial buildings such as warehouses and hotels.

That will be offset by lower spending on institutional buildings like schools, public works like bridges and roads, and electric utilities, according to the annual McGraw-Hill Dodge Construction Outlook.

Factors holding back a recovery include 9.1 percent unemployment, spending cuts by state, local and federal governments, and uncertainty caused by the European debt crisis and the debt limit debate in Washington.

The risk of recession has grown, according to the outlook.

Next year's estimated $412 billion in construction starts is up slightly from 2011's estimated $410 billion, which marked a 4 percent drop from the prior year. In 2006 and 2007, before the economic crisis, total construction spending was well above $600 billion.

McGraw-Hill Construction is a unit of McGraw-Hill Cos Inc . Dodge is the unit's construction database.

BUDGET CRUNCH

"Although there are some positives for single-family housing and commercial building, both are proceeding from exceptionally low levels," said Robert Murray, Vice President of Economic Affairs at McGraw-Hill Construction.

"The biggest impediments near-term are the potential cutbacks to federal spending and the tight budget situation for state and local governments," Murray said. Institutional and public works construction has further room to fall.

"In terms of overall construction, a real rebound will be pushed back at least a year," he said, until the U.S. economy sees sustained job creation. "This is the most extended bottom we've seen in at least the past 30 to 40 years."

Among McGraw-Hill's specific forecasts:

* Spending on single-family homes will rise 10 percent to $105 billion. But the number of new starts, 435,000, is roughly one-quarter of the peak earlier this decade, depressed by foreclosures.

* Spending on public works will fall 5 percent to $95 billion, extending a 2011 decline, due to spending cuts and the lack of a national highway bill.

* Spending on institutional buildings will fall for the fourth year in a row, to about $92 billion, because of state and local budget cuts.

* Electric utilities' construction will fall by 24 percent to $32 billion to $28 billion, after robust growth in 2011.

* The biggest jump wil occur in construction of multifamily housing, up 18 percent, helped by demographic trends. Because many Americans cannot afford to buy homes, more people are being pushed into the rental market.

* Spending on commercial buildings will rise 8 percent to about $47 billion, with the biggest increases in hotel and warehouse categories and modest improvement in retail and office sectors.

Most diversified industrial companies get at least some revenue from construction. They include Honeywell International Inc , Tyco International Ltd , Ingersoll Rand Plc <IR.N, Eaton Corp , Caterpillar Inc , Deere & Co and Terex Corp .

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