2012 Construction Outlook—Experts Agree on One Thing—No Significant Growth

Image: Reed Construction Data

On October 13, 2011 Reed Construction Data held one of their very informative construction forecast webinars.  The title, Flat, Up, or Down, Where is Construction Heading?  was somewhat rhetorical, as the consensus of all the panelists pointed to little overall growth in 2012.

Bernard Markstein, Chief Economist, Reed Construction Data, kicked things off with a forward estimate of the US Economy.  Reed Data’s consensus for GDP growth is a very modest 1.5 to 3% in 2012 and 2013.  He expects total construction–driven mostly by non-building construction like highways, as well as the heavy industrial sector—to be up 5 to 7% over the next two year period.  By major building segment, Markstein sees Residential growing 2 to 5% annually and non-residential (again, mostly industrial and manufacturing) to grow in the 5 to 8% range annually.

The next presenter, Kermit Baker, Chief Economist for the American Institute of Architects, addressed the Residential and Non-Residential sectors.  The news, as expected, was tempered. Residential will likely to improve a bit in 2012, but coming from the worst levels on record, the growth will feel anything but robust.  The general consensus of the forecasters polled for Baker’s presentation was for total housing starts in the low to mid-600s next year, driven mostly by multi-family.  The growth that does occur will be regional, with higher levels of activity in Texas, Boston, New York and the Silicon Valley, and continued weakness in overbuilt markets like Las Vegas, Phoenix, Tampa and San Diego.

Baker did point to some hopeful demographic trends.  The Census Bureau is forecasting significant growth in several key demographic segments that should bode well in the coming decade.  Increased numbers of school age children (5 to 17 years of age) will mean more school construction, once local tax revenues recover.  Likewise expected strong growth in young workers (25 to 44) should bode well for multi-family and etnry level housing.  Lastly, a strong jump in potential retirees (65 to 84) will mean greater demand for active living, assisted living and skilled nursing projects.   All it takes it time—it would seem.

Lastly, Ken Simonson of the Associated General Contractors presented.  Those Aegis fabricators that had the opportunity to hear Ken speak earlier this year can attest that his fun, conversational style helps make a very dry subject (construction economics) a little more palatable.   Unfortunately, Ken’s presentation style could not mask his underlying negative outlook for many key segments in Non-Residential.    Lead by a projected sharp drop in Base Realignment and Closure(BRAC) activity, as
well as weak K-12 educational construction, Simonson expects total Public spending to be down 6% or more in 2012.  With Private non-residential forecast to be only flat or slightly up, it is likely demand for cold formed steel framing and trusses will be stagnant in 2012.

Construction forecasts are, as they say, “worth what you pay for them.”  Looking back at the past few years of projections, most have been off pretty dramatically.  So, we shall hope that is the case this time and, construction will actually improve nicely in 2012.

There is one thing that Aegis’ fabricator partners CAN be certain of.  That is, we are 100% committed to helping you through these challenging times.