ABC Predicts 2012 Will Be a Slow Year for Construction

WASHINGTON, Nov. 17, 2011 /PRNewswire-USNewswire/ -- Associated Builders and Contractors (ABC) today released its 2012 economic forecast for the U.S. commercial and industrial construction industry. "ABC's analysis of construction trends indicates 2012 will be a year of gradual progress as advances in private construction are partially offset by ongoing declines in publicly financed construction," said ABC Chief Economist Anirban Basu.

"Nonresidential construction spending is expected to grow 2.4 percent in 2012 following a 2.4 percent decrease in 2011," Basu said. "The pace of recovery in the nation's nonresidential construction industry remains soft and 2012 is positioned to be a year of slow gain. The first half of 2012 may be particularly challenging, a reflection of the soft patch in economic activity experienced during much of the first half of 2011.

"ABC's national Construction Backlog Indicator, which stood at 8.1 months for both the second and third quarters of 2011, is not expected to advance substantially and likely will remain in the vicinity of 8 months of backlog for much of 2012," said Basu. "However, backlog is one month higher from the same time last year. A backlog of less than 8 months is associated with construction spending declines, while a backlog exceeding 8 months is statistically associated with future construction spending increases. Today's level of backlog is consistent with flat construction spending.

"Nonresidential building construction employment is expected to increase 0.4 percent in 2012 following lackluster 0.6 percent growth in 2011," Basu said. "Employers will continue to seek increased productivity among existing workers in order to boost weak industry margins.

"There may be a degree of relief for construction contractors with respect to materials prices.  In 2011, prices for construction inputs rose 7.5 percent," said Basu. "ABC expects 2012 materials prices will rise 4.7 percent. Despite a sluggish construction recovery, input prices are likely to remain elevated as global investors retain significant ownership in commodities and hedge against risks emerging from Europe, the United States, China and Brazil.

"The direction of the U.S. dollar will play a major role in determining construction input prices in 2012. However, the dollar's direction is far from obvious," Basu said. "Although the nation continues to run a large trade deficit, which implies further deterioration in the value of the dollar over time, investors often race to dollar-denominated assets during times of global financial stress. We are in one of those times now, which could keep the dollar inflated in 2012. While this would create a more challenging environment for U.S. exporters, it would likely result in lower construction materials prices."

"For the most part, 2011 has been disappointing. However, recent economic news has been more positive, including data regarding the gross domestic product (GDP), business investment and exports," Basu said. "If the U.S. economy continues to progress, eventually this will translate into more vigorous recovery in the nation's nonresidential construction sector.  

"Many prominent forecasters expect GDP to expand less than 3 percent next year. The economic recovery in the United States to date cannot sustain brisk expansion without the participation of real estate and construction activities," Basu said. "With office vacancy rates still high, job creation still slow and lending still disciplined, 2012 is not positioned to be a year of significant progress in private investment. Public construction spending continues to decline in many communities across the United States.

"ABC anticipates ongoing improvement in the volume of privately financed construction as economic conditions gradually improve and lending institutions become more comfortable lending to deep-pocketed investors operating in stable contexts," said Basu. "More importantly, certain leading indicators have turned the proverbial corner, including ABC's Construction Backlog Indicator. This forward-looking measurement has shown slow but steady improvement in the commercial/institutional construction category, presently associated with a backlog of 8.4 months.

"Much of the growth in recent years has emerged from publicly financed projects, including projects related to the U.S. stimulus package passed in February 2009," Basu said. "With the impact of stimulus-funded projects steadily declining, the U.S. nonresidential construction sector will become increasingly dependent on privately financed projects for growth.

"However, certain segments are better poised for growth than others. Leading the way in recent months has been construction related to the nation's power industry, which ABC projects to expand 11.4 percent during the course of 2011," said Basu. "The driving force for the United States appears to be in energy, and the growth of this economic segment has been evident in a number of states, including Texas, Oklahoma, North Dakota and Pennsylvania. ABC expects power construction to continue to lead the way with a projected 9 percent increase in spending in 2012.

"Health care represents another likely candidate for economic expansion. This is true for a number of reasons, including thawing credit markets, the nation's demographics and health care reform, which will continue to increase the number of Americans with insurance and therefore enhance utilization," Basu said. "Because of this, ABC projects health care construction spending to increase by 8 percent in 2012.

"In many communities across the nation, industrial contractors can be characterized as busy, or at least increasingly occupied, while commercial contractors generally have struggled with overcapacity in 2011," said Basu. "However, following several years of decreased spending, ABC expects lodging and office construction to progress in 2012.  

"Unfortunately, the impact of tight state and local government budgets will continue in 2012," Basu said. "A number of key categories closely linked to state and local government spending are expected to decrease in 2012, including educational spending, edging down 4 percent. Overall, ABC forecasts public nonresidential construction spending will slip 2 percent in 2012."

Associated Builders and Contractors (ABC) is a national association with 75 chapters representing more than 23,000 merit shop construction and construction-related firms with nearly two million employees. Visit us at www.abc.org.

SOURCE Associated Builders and Contractors