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ea"i§§£'sc*iltlilENF? 

 Stalled Recovery Ready To Rev Up

Some markets turn the corn...
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construction starts in 2011. But after three years of massive declines,  next year’s ...
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2010’s level, ” says ABC's chief economist Anirban Basu.  “Privately financed constru...
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with a 12% rise to 125,000 units and could rise another 19% to 149,000 units in 2011....
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Educational Buildings
Health-Care Facilities
Other Institutional Buildings

NON-BUILDING CONSTRUC...
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Power 89.405 84,041 91,604 -6.0 +9.0

Water Supply 15,561 15,559 16,026 0.0 +3.0

SOU...
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Construction Stimulus Article

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Construction Stimulus Article

  1. 1. Welcome to the ENR site Page 1 of 6 ea"i§§£'sc*iltlilENF? Stalled Recovery Ready To Rev Up Some markets turn the corner with double~digit gains, but real recovery waits for 2012 11/10/2010 By Tim Grogan, Bruce Buckleyand Tom Ichniowski [Page 1 of 2] This year started out well, with a stimulus jolt to the depressed homebuilding and public—works markets. But it ended badly when the tax credits to home buyers expired, federal stimulus spending fell short of expectations, and the non—residential building market tanked all on its own. As a result, 2010 will probably become known in the economic lexicon as “the stalled recovery. “ In a word, what stalled is housing, which traditionally leads the construction industry out of a recession. A year ago economists were predicting 30% increases in the housing market, but that turned into a mere 6% gain, ,_ not enough to carry a recovery, especially with : ‘"' - - ~‘ ll‘ _ _ _ - the non—residential market posting double—digit -- lliillll lIJIll. 'a. ll, .5. , N , , ll declines and massive federal stimulus funding T o . ' managing to boost public works by only 2%, . . . '«~ i , according to McGraw—Hill Construction’s estimates for 2010. '.1:fi‘l' ‘ '5! was Mir «mm rm, ‘-. “"Iau2a1ius'avvas>¢| wnna? nA3¢nnui. n¢n1'n'aIiu; I-vvrc However, there are several signs that markets may be turning and that 2011 will be a transition year leading to a real recovery by 2012, according to an industry forecast produced by ENR. Unfortunately, there are just 0 as many warning signs that a stalled recovery could become a prolonged recession. Among % the warning signs are persistent high unemployment, tight credit and the potential of political :1 gridlock, with a resurgent Republican Party showing little interest in further stimulus funding. McGraw—Hill Construction has attempted to sort out these mixed signals and believes that markets 0 will prevail over politics. MHC is forecasting the dollar value of total US. construction starts in 2011 will increase 8% to $445.5 billion, following an estimated 2% decline this year and an actual 24% drop in 2009. i Again, most of next year's increase will come from a predicted 27% increase in single-family housing. In addition, MHC believes that market fundamentals will lead to some solid rebounds, 1 including a 13% increase in office building work, which declined 23% this year. Other big 5 turnarounds are a projected 13% increase in hotel and motel work, after falling 31% this year; a 25% increase in commercial building, following a 10% decline in 2009; and a 14% increase in stores and 2 shopping centers, following a 7% decline this year. “Its easy to get double~digit increases off of such low numbers, ” says Robert Murray, MHC’s chief economist. "In volume terms, some of these markets are simply moving up from their worst year to , their second-worst year we have seen since 1960," Murray says. While severely depressed markets : are starting to turn back up, the economy is still a long way from its previous peaks. 1 Office, retail, warehouses and hotels all are following a similar pattern with double-digit increases in http: //em. ecnextcom/ comsitefi/ bin/ enr~description_docview_save. pl? page= enr_documen. .. 1 1/12/2010
  2. 2. Welcome to the ENR site Page 2 of 6 construction starts in 2011. But after three years of massive declines, next year’s increases appear on the charts more as a blip than a surge. For example, Murray predicts that office building starts will increase 13% next year to 59 million sq ft. But in 2007 the market was around 225 million sq ft. , and in 2001 it was more than 300 million sq ft. The impact of the recent elections is a concern, says Murray. “The odds of political gridlock have increased, and that increases the downside risk of the forecast, ” he says. “ its critical that Congress addresses the 2011 fiscal appropriations and the multiyear transportation bill, it is not a question of stimulus anymore but getting ongoing regular financing for the coming year, " Murray says. Gridlock and Funding Uncertainty again characterizes federal spending. Congress failed to pass any of the 12 individual appropriations bills for fiscal year 2011 before Oct. 1, the start of that year. Before recessing for the November elections, Congress approved a stopgap continuing resolution (CR) that will keep federal agencies operating through Dec. 3. Congress is scheduled to return for a postelection lame-duck session, during which it will have to pass a further extension to avoid a shutdown of federal programs. How long that extension will be and what funding levels it will contain are unclear. , Complicating the spending picture is the power shift in Congress, with Republicans’ gaining control , of the House, thanks to their victories in the Nov. 2 elections. lt’s uncertain whether Democrats will 1 seek—or Republicans will accept—a CR that carries through Sept. 30, the end of fiscal 2011. I The current stopgap funds most federal programs, including those dealing with construction, at their 1 fiscal 2010 levels. The major construction exception is the Dept. of Defense’s Base Realignment and Closure (BRAC) program. The current CR funds BRAC at the annual rate of $2.35 billion. That 6 amount is what President Obama requested for fiscal 2011, but it represents a 68% reduction from _' the 2010 total, reflecting the scheduled phasing down of work. . Devil in the Details 3 “It is important to differentiate between starts, which are forvvard—looking, and construction put-in- i place spending numbers, " says Murray. “While starts may be up next year, we expect spending .1 numbers will have another negative year in 201 1 And a big negative in this year's report is that the U. S. Dept. of Commerce has discontinued its forecast of construction put-in-place data, which had been a cornerstone of ENR’s forecast for 2 decades. Commerce is switching its focus to “import/ export issues, " says Pat MacAuley, who compiled the Commerce forecast. Fortunately, the Raleigh, N. C.—based FMl Corp. continues to forecast Commerce's put—in-place construction data. FMI predicts that total construction put-in-place will increase 5% next year after falling 7% in 2010 and 15% in 2009. The FMl forecast sees residential markets increasing 11% next year, while the nonresidential market slips another 1%. “The upturn should be viewed more as a turning point than a dramatic rebound, ” says Randy Jiggard, managing director of research services at FMl. “This is not the kind of recovery that will come bouncing back. It may be five years before the market breaks the trillion-dollar mark again, ” he says. For 2011, FMl predicts total construction put-in-place will be $881 billion. A forecast by the Associated Builders & Contractors. Washington, DC. is a bit more pessimistic. 0 “ABC forecasts that total nonresidential construction spending next year will be 0.1% less than http: //enr. ecnext. com/ comsite5/bin/ enr_description_docview_save. pl? page= enr_documen. .. 1 1/12/2010
  3. 3. Welcome to the ENR site Page 3 of 6 2010’s level, ” says ABC's chief economist Anirban Basu. “Privately financed construction levels are projected to decline 0.2%, while publicly financed construction levels are projected to be virtually flat, ” he says. The Portland Cement Association, Skokie, lll. , also is looking for construction spending to be flat next year. “My gut feeling is that there is still a lot of risk out there, ... [Page 1 of2j v NEXT)» A Stalled Recovery Ready To Rev Up Some markets turn the corner with double-digit gains, but real recovery waits for 2012 11/10/2010 By Tim Grogan Bruce Buckley and Tom lchniowski . ..and I don’t see anything on the horizon that is going to give us that big lift, " says Ed Sullivan, PCA's chief economist. After adjusting for inflation, the PCA expects total construction put-in-place to increase just 0.1% next year, after falling 7.1% in 2010. PCA agrees with most other forecasts that the non-residential building market will still be down next year, calling for another 4% decline in that market following this year’s 33% decline. PCA is a bit more pessimistic in its public construction and housing forecasts. With stimulus funds fading and state and municipal governments struggling, PCA expects total public construction to fall 1.2% in 2011, after inching up just 0.1% this year. “Given the fiscal problems with most states, we can't expect them to extend their construction activity in 201 1 says 1 Sullivan. “And with the political changes, we don't see a new highway spending bill until 2013, which i leaves us at last year's level or worse, “ he adds. ‘ In the homebuilding market, PCA predicts only a 3.8% increase next year. ‘‘It is true that there is ; pent—up demand and the prices are becoming more affordable, but that will be offset by foreclosure i activity, " Sullivan says. "We see slower economic growth, and that means job creation will be slower i and the potential for defaults remains high. " The Housing Question After modest improvement in single-family housing starts this year, the sector could make significant ~ gains in the coming years, according to the National Association of Home Builders. NAHB chief economist David Crowe estimates 2010 will close with an 8% increase in single-family home , construction starts to 479,000 units, less than originally forecast for the year. “The [economic] lull in the middle of the year took a lot more wind out of the sails than expected, ” he adds. 9 Crowe notes that many potential buyers remain on the sideline because of concerns about their , financial situation and because they can’t sell their own homes. Between hesitant owners and a i tough lending climate, existing inventory of new unsold homes is at its lowest level since 1968. 3 However, improved employment numbers and looser lending could help spark a rebound. Crowe ; sees a significant pickup in activity in single-family housing starts, with 655,000 in 2011 and 970,000 2, in 2012—a nearly 100% jump from 2010 figures. 1 Meanwhile, multifamily housing has already started to recover. NAHB forecasts that 2010 will end http: //enr. ecnext. com/ comsite5/bin/ enr_description_docviewmsave. pl? page= enr_documen. .. 1 1/12/2010
  4. 4. Welcome to the ENR site Page 4 of 6 with a 12% rise to 125,000 units and could rise another 19% to 149,000 units in 2011. Crowe says demand in the rental sector has helped drive the increase, as many who struggle to get loans are forced to rent rather than buy. Highway Funding As the last of the stimulus funds moves through state departments of transportation, highway and bridge budgets are about to reach a harsh reality. With much of the stimulus funding directed toward shovel—ready projects, paving work could see the biggest correction, according to the American Road & Transportation Builders Association. ARTBA estimates that spending on paving work will drop 17% this year to $47 billion, and it will drop an additional 5% in 2011 to $44.5 billion. Bridge funding remains relatively flat. After rising 1% to $23.7 billion this year, it is expected to drop to $22.7 billion in 2011. ARTBA senior economist Alison Premo Black says that, even in the face of the recession, bridge work remains stable because projects tend to pay out over longer periods of time. Plus, bridge work didn't receive the same big spike from the stimulus that was seen with paving projects. Other transportation-related projects, such as sidewalks, lighting systems and toll facilities, are expected to drop from $6.4 billion this year to $6 billion in 2011, ARTBA predicts. Black says the forecast assumes 2011 federal transportation spending will come in at around $43.5 billion, which is based on levels previously discussed in Congress this year. State and local spending, which has been hampered by drops in tax revenue, also is uncertain but could improve 7 next year, she says. Black notes that nearly half the states have shown increases in contract awards 7 this year. ‘‘It’s a conservative forecast, but if the economy improves, perhaps we could see increased spending at the state and local levels, " she says. “Some states are already seeing growth, so there are some positive signs. Will it be enough? We don‘t know. ” FORECAST 2011 MCGRAW-HILL CONSTRUCTlON STARTS (CURRENT $ M| LLlONS) PERCENT ACTUAL ESTIMATE FORCAST CHANGE CONTSYTPREEEION 2009 2010 2011 09-10 10-11 g TOTAL CONSTRUCTION 420,691 411,275 445,525 -2.2 +8.0 7 RESIDENTIAL 111,755 119,100 150,375 +6.6 +26.0 Single—Family Housing 94,341 100,025 126,725 +71 +27.0 Multifamily Housing 17,414 19,075 23,650 +95 +240 NON-RESIDENTIAL 167,537 150,875 156,850 -10.0 +4.0 _ Office Buildings 19,954 15,375 17,300 -23.0 +130 ‘ Hotels and Motels 4.587 3,150 3.575 ~31.3 +130 1 Stores and Shopping Centers 13,219 12,250 13.925 7.3 +140 Other Commercial 8,965 8,050 10,100 -10.2 +25.0 , Manufacturing 9662 8,475 9,250 -12.3 +9.0 http: //enr. ecnext. com/ comsite5/bin/ enr_description_docview_save. pl? page= enr_documen. .. 1 1/12/2010
  5. 5. Welcome to the ENR site Educational Buildings Health-Care Facilities Other Institutional Buildings NON-BUILDING CONSTRUCTION Highways and Bridges Environmental Public Works Other Public Works Electric Utilities TYPE OF CONSTRUCTION TOTAL CONSTRUCTION ‘ total RESIDENTIAL Single Family Multifamily Home Improvement TOTAL NON«RESlDENTlAL E Lodging : Office Amusements and Recreation 1 Religious Education Health Care Commercial Manufacturing Public Safety, Administrative Transportation - NON-BUILDING STRUCTURES : Conservation and Development Highways and Streets Sewers Systems 48,090 20,178 42,882 141,399 56,899 36,270 28,451 19,779 44,075 21,075 38,425 141,300 59,700 36,900 27,000 17,700 Page 5 of 6 43,575 -8.4 -1.0 22,900 +4.5 +9.0 36,225 -10.4 -6.0 138,300 .0.1 -2.0 57,600 +4.9 -4.0 37,200 +1.7 +1.0 27,500 -5.1 +2.0 16,000 —10.5 -10.0 SOURCE: |z1CGRA/ ‘/ -HILL CONSTRUCTION FIGURES FOR 2011 ARE ESTIMATED FORECAST 2011 FMI: CONSTRUCTION PUT-IN-PLACE ACTUAL 2009 907,787 253,576 107,325 32,224 1 14,027 437,183 25,474 52,717 18,901 6,206 102,907 45,1 11 55,042 58,513 14,099 38,459 217,028 5,624 82,028 24,410 (CURRENT $ MILLIONS) ESTIMATE 2010 842,216 268,659 123,424 20,946 124,289 360,313 14,011 36,902 15,499 5,399 92,616 41,051 37,979 42,129 13,676 43,074 213,245 6,636 82,1 10 24,898 FORCAST ZERCENT HANGE 2011 09-10 10-11 881,070 -7.0 +5.0 297,382 +6.0 +11.0 148,109 +15.0 +200 19,270 -35.0 -8.0 130,504 +9.0 +5.0 357,102 -18.0 -1.0 14,018 -45.0 0.0 35,425 -30.0 -4.0 15,809 -18.0 +2.0 5,507 -13.0 +2.0 95,395 -10.0 +3.0 43,104 -9.0 +5.0 35.700 -31.0 -6.0 33,703 -28.0 -20.0 14,086 -3.0 +3.0 45,659 +12.0 +6.0 226,035 -2.0 *6.0 7,167 +18.0 +8.0 85,394 #0 +4.0 25,894 +2.0 +4.0 http: //enr. ecnext. com/ comsite5/bin/ enr_descripti0n_docview_save. pl? page= enr documen. .. 1 1/12/2010
  6. 6. Welcome to the ENR site Page 6 of 6 Power 89.405 84,041 91,604 -6.0 +9.0 Water Supply 15,561 15,559 16,026 0.0 +3.0 SOURCE FMI CORP. RALEIGH N C HISTORICAI, DAT; -”-. IS COMPILED FROM BIJII DING PERMITS. CONSTRUCTION-PUT-PLACE AND TR! ‘-DE—SOUP. CE ESTIMATES FOR 2010. AS WELL AS A FORECAST FOR 2011 BY FMI FORECAST 2011 PCA CONSTRUCTION PUT-IN-PLACE (CONSTANT 1996 $ BILLIONS) PERCENT ACTUAL ESTIMATE FORCAST CHANGE TYPE OF CONSTRUCTION 2009 2010 2011 09-10 10-11 TOTAL CONSTRUCTION 552.4 513.4 514.0 -7.1 +0.1 TOTAL RESIDENTIAL BUILDING 167.6 172.3 178.9 +2.9 +3.8 ; ;3|T': "|‘3"”: '(E,3”'RES'°E"T'AL 132.9 89.6 86.1 -32.5 -4.0 Industrial 33.0 19.9 19.2 -39.7 -3.5 Office 23.5 15.0 15.0 -36.1 -0.3 Hotels. Motels 15.8 7.3 6.7 -53.8 -8.2 Hospitals, Institutions 17.8 16.1 16.2 -9.3 +0.5 Religious and Miscellaneous 3.8 3.3 3.1 -13.0 -6.0 Educational 9.1 7.6 7.1 -16.7 -6.7 Commercial 25.0 16.4 15.0 -34.4 -8.5 . PUBLIC UTILITY 63.9 62.3 61.8 -2.5 -0.8 PUBLIC CONSTRUCTION 184.3 184.4 182.1 +0.1 -1.2 Buildings 74.6 68.2 65.9 -8.7 -3.3 Highways and Streets 45.1 47.4 47.8 +5.1 +0.9 Conservation 3.6 3.9 3.9 +9.2 +0.9 Sewer Systems 15.4 16.2 16.1 +4.7 -0.2 Water Supply 98 9.7 9.3 -1.5 -4.6 Military/ Miscellaneous 27.9 31.9 32.1 +14.3 +0.6 SOURCE PCIRTUXNCI CE: 'u1ENT ASSOC? /‘«. TIxT)N SKQKIE iI_I. . Copyright © 2006-2008 The McGraw—Hill Companies - All Rights Reserved. http: //enr. ecnext. com/ comsite5/bin/ enr_description_docview_save. pl? page= enr_documen. .. 1 1/ 1 2/201 0

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