FMI’s Construction Outlook - First Quarter 2012 Report

Construction put in place forecasted to increase 5 percent from 2011

By Sarah Avallone

U.S. total construction spending vs. GDP

FMI, the largest provider of management consulting and investment banking to the engineering and construction industry, releases the first-quarter, 2012 Construction Outlook Report. FMI's forecast for total construction put in place in 2012 is a 5 percent increase compared to 2011, or $826.3 billion. The last time construction put in place was at this level was 2000-2001.

Economic Indicators

Despite slow growth projections and rising gasoline prices, the GDP is still growing and consumers are still spending, reflected in the Conference Board's Consumer Confidence Index® increasing to 70.8 in February compared to 70.4 a year ago. Along with the Federal Reserve's intervention, these factors have served to keep growth slow and inflation in check.

Residential Construction

In order for residential construction to achieve the 8 percent increase projected and top $264.4 billion in 2012, a number of factors still have to fall into place:

Reduction in the current inventory of homes

Lenders willing to lend on reasonable terms

Steady improvement in hiring

Nonresidential Construction

Projections indicate a 4 percent increase in nonresidential buildings for 2012, topping $341 billion, with slightly higher growth in 2013 to $361 billion. Nonresidential contractors are facing many of the same problems as residential contractors. In addition, competition is fierce, with low price still the name of the game. Project owners who are ready to restart their building programs are expecting hungry contractors to submit very low bids. One of the keys for growth will be the return of private investment in construction. Additionally, federal, state and local government construction have been dialed back until budgets are in better repair and tax revenues return to levels that are more normal. Research indicates that there are signs this is starting to happen.

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