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August 2, 2012 3:00 PM CDT

Fundamentals are improving

Business optimism moving up

By

Construction market fundamentals are generally improving.

Construction market fundamentals are generally improving.
While any concrete contractor or producer knows that the construction industry recovery has been painfully slow, signs exist that optimism is starting to emerge.

Construction market fundamentals are generally improving. These include office vacancy rates, retail rents, and hotel revenue per room. Consumer sentiment has improved, and, business optimism "has been moving up sharply over the past few quarters," said Kermit Baker, chief economist with the American Institute of Architects. Corporate profits have increased as well, allowing companies more breathing room to invest.

He and other economists held a press conference in mid—June to discuss the state of the construction industry and their forecasts for the coming months.

Many construction sectors of the economy have shown life, said Anirban Basu, chief economist with the Associated Builders and Contractors. As of April 2012, the following subsectors have improved, compared to a year earlier:
  • Manufacturing—up 27%
  • Power—up 19%
  • Commercial—up 10%
  • Office—up 8.9%
  • Highway and Streets—up 3.5%
Sectors that have fallen include conservation and development (down 24%) and water supply (down 1.4 %).

Basu cited lack of confidence as the reason for the dearth of jobs in the industry. Although gross domestic product expanded for the past 12 consecutive quarters, job growth is decelerating. In May 2012 alone, 28,000 construction jobs were lost in the U.S.

On the home front, the National Association of Home Builders forecasts the long—awaited recovery in new and existing home sales to finally start this year. New home sales will increase 19 percent in 2012, while existing home sales will move up 16 percent, said David Crowe, chief economist for the NAHB.

Overall, the economists believe that lack of confidence and nervousness are the major roadblocks to the industry. Regarding the November presidential election, they believe that no matter who is elected, there will be no dramatic changes in policy.

Crowe believes policy uncertainties ahead include the future of Dodd—Frank regulations, tax reform, debt and deficit reduction, and the future flow of credit.


About the Author

Kelley Lindsey is a Hanley Wood Commercial Group editorial intern.

 

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