Murray predicts total construction for 2002 will be off by 2%, down from growth of 4% last year and 5% in 2000, and the much headier days of +12% in 1998, and +11% in 1999.
However, three of four major construction sectors - single family housing, public works projects and institutional building - are doing very nicely, barely impacted by the "recession." Income properties, such as apartment buildings, is the only one of these Big Four that is down and continues to struggle.
Murray is vice president, economic affairs, for McGraw-Hill Construction (www.construction.com). He presented his forecast before a group of community business leaders in Middleburg Heights, a Cleveland suburb, in June.
Aside from the broad picture, there is considerable to cheer about in select construction niches, according to Murray. Schools continue to thrive, with no letup in sight. In fact, as federal and state belt-tightening takes place and spending on major public works projects begins to slow, school spending is often held exempt, for political reasons. This is part of the continuing emphasis on education in general, but is also a reaction to decades of neglect and deferred spending. Colleges and universities also continue to expand as more students continue on with their education.
Stores and shopping center construction continues to drop after a peak period of expansion in 2000. Some of this may be a cooling off period after overexpansion: the same goes for new hotel rooms, although both retail spending and tourism were considerably impacted by the events of 9/11.
Around the country, individual projects represent considerable opportunities for growth. In Minneapolis, the already mammoth (5 million-sq.-ft.!) Mall of America is pursuing plans to double in size after acquiring vacant land from the city's airport. More retail space, condos, hotel rooms and offices are planned for that area.
The building boom around the country in 2001-02 for convention centers and new sports arenas/stadia should now lead to more hotel rooms and retail space around those new venues.
Several cities and communities are in the process of reinvigorating their downtown areas: Minneapolis, St. Louis and Las Vegas, to name a few. Las Vegas recently freed up 61 acres of valuable property in the downtown area and will try to give that city a residential focus that has been lacking in what has been called a "head spinning" project of huge proportions.
Regarding retailers, the "giants" continue to thrive and move ahead. Wal-Mart, the darling of Wall Street, continues to expand and plans a slew of new stores nationwide for its "neighborhood market" concept as it widens its entry into groceries. Walgreens drug stores continues on an aggressive growth track, along with Best Buy electronics stores and that ever-persistent Home Depot.
One of the challenges of '02 and beyond will be in incorporating security concerns into new building projects, according to Murray. For that reason, some airport expansion plans around the country are on hold, coupled with the cutback in vacation travel. However, he expects those expansions to surge ahead once new security systems can be successfully incorporated into the plans.
On the downside, warehouses have dropped 20%. This is a direct response to the slowdown in manufacturing, but may also be a sign of changes in the industry as products are moved more quickly to market.
Another glitch is in office building construction. Office employment has dropped along with occupancy rates, although those have already started to swing back upward. New construction continues at an almost frenetic pace in New York City - Murray said it could take as long as 10 years to redevelop the 16 acre World Trade Center site. A new skyscraper is planned for midtown Manhattan and the New York Times is constructing a new headquarters.
Of course, all forecasts hinge on future threats of terrorism. "Otherwise, all (the forecasts) are out the window."
Locally, he said, Ohio has suffered more because of its dependence on manufacturing. The state has the nation's eighth highest concentration of manufacturing jobs. Cleveland's economy is struggling, but Columbus has seen some rapid expansion and Cincinnati's future is tied to some new sports and casino gambling activity. Overall, Ohio's total construction spending for 2002 is down by the same 2% as the rest of the country.
David Ditmars, director of United McGill Corporation's Marketing and Engineering Sales Services, attended the forecast meeting. He said he was somewhat discouraged by the outlook for industrial and commercial but was pleased by the optimism for schools, public health and residential construction. "I guess the forecast for next year is acceptable; at least it's not flat," he said.
Another look, similar viewsFMI, management consultants to the construction industry, in June released its Construction Outlook: Second Quarter 2002 Report.
Unseasonably warm weather this winter and increased government spending helped bolster the construction industry over the first six months, according to Raleigh, N.C.-based FMI. Happily, "Most underlying factors point to a renewed construction expansion beginning later, in 2003."
Residential construction will suffer in 2002, but keep in mind this is coming off a record year in 2001. Moreover, according to FMI, "the U.S. economy appears to be recovering from the second-mildest recession on record. An economic expansion may be well under way judging by the upbeat economic news released in March."
However, the uptick won't be huge, since the recession failed to keep many consumers from spending, and unemployment never reached major proportions.
Hotel/motel occupancy rates are rising, and may even have been exaggerated by some forecasters. Office construction is still feeling the effects of a lackluster economy, however, and may not improve until late 2003 or 2004. There may be overcapacity as well, from telecommuting, use of part-timers, etc.
While retail sales have held up reasonably well, retailers continue to be constrained by lower sales per square foot. Consequently, "a mild recovery will not put noticeable pressure on the retail space market until 2003."
And while the manufacturing sector may be recovering, that won't necessarily result in new capital spending due to "overinvestment during the 1990s and current low factory utilization rates."
"The U.S. construction economy has been a pleasant surprise to many because it has proven to be resilient to rising layoffs and wavering consumer confidence levels during the past year," according to FMI. "Unfortunately, underlying drivers such as home affordability, office vacancy rates, and industrial capacity-utilization rates are not likely to be as favorable for the remainder of the year. But look for a healthy rebound in many building sectors in 2002."