OUR THOUGHTS ON:

Construction Industry Crystal Ball -- What to Expect in the Near Term?

Construction

By Joe Bruce

In an August 2011 webinar, an Associated General Contractors of America (AGC) panel conveyed near term domestic expectations that included a rise in commodity prices, a slow U.S. recovery coupled with a weakening U.S. dollar and housing prices that could remain relatively stagnant for a number of years.

Commodity prices, often a key indicator to major construction costs, are expected to rise during the remainder of 2011 and 2012. The panel expected increases in crude oil, natural gas, aluminum, copper and nickel, all of which play a significant role in construction industry costs – fuel and transportation, structural steel, framing, piping, tooling, etc.

Furthermore, the panel went on to discuss, these expected increases in material costs can be combined with anticipated increases in labor costs as well. Unfortunately, although total construction spending is expected to rise anywhere from 6%-10% in the next 48 months, the bid prices are expected to be outpaced by the rising material costs, which potentially means another long run of constricted margins for contractors and builders. On a positive note, predictions for highway materials (concrete and asphalt) and standard building materials (lumber, plywood and gypsum) were expected to be relatively flat over the next 18 months. However, this offers limited relief to a housing market that continues to struggle through high unemployment and substantial foreclosures and a heavy highway industry facing continued federal and state budget reductions.

Looking at sectors within the construction industry, the panel noted that the greatest opportunities were within power generation, communication, warehouse/distribution, apartment building and health care construction while ongoing issues continue in single-family home construction, recreation, office and retail construction. Collectively though, the near term expectations for the construction industry were not overly optimistic in most sectors as market uncertainty, high unemployment and substantial government budget reductions coupled with expectations of rising commodity prices and a stagnant housing market have slowed the U.S. recession recovery.

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