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2007 Should Be Another Good Year for
the Industry
By Mark J. Shaw, Editor-in-Chief
This issue of Constructor offers a diverse
look at what contractors can expect for the industry in 2007,
including an overview of materials prices, equipment, insurance
and bonding. In general, the news is good.
AGC Chief Economist Ken Simonson and
Robert Murray, vice president of economic affairs at McGraw-Hill
Construction, expect materials to be more readily available
than last year and prices less volatile, with a few lingering
uncertainties, like asphalt.
"The overall climate of the construction
industry is positive, and we should have another good year
in '07, with labor concerns as the only potential headache
for most companies," Simonson says. Murray expects a
somewhat flat year in terms of construction starts, at around
$668 billion, compared to nearly $672 billion in new projects
in 2006.
"We predict a 5% decline in housing
starts for 2007, but the overall construction market will
remain relatively stable, thanks to other strong building
sectors," Murray says. Those include institutional buildings,
hotels, warehouses and environmental and highway projects.
Trouble spots will continue to be the
single-family residential sector, which could see a 5% dip
in housing starts in 2007. This decline will have some ripple
effects across the broader construction industry, because
new homes have historically led to construction of new retail
centers, so store construction could drop by 7% this year,
believes Murray.
Simonson agrees: "I think there
is still plenty of life left in hotel, hospital, energy-related,
and public spending. But single-family home construction will
remain in free-fall for several more months."
Overall, "the market fundamentals
are strong," Murray says. "It's conducive to more
construction taking place. In 2008 you might see a pullback
in public works and institutional building, but it might be
time then for single-family housing to once again be a source
of expansion."
But some industry insiders see potential
problems ahead if critical public works funding isn't put
in place soon and the levels closely monitored. Steve Massie,
AGC's senior vice president and CEO of Jack Massie Contractor,
Williamsburg, Va., testified in mid-November before the National
Surface Transportation Policy and Revenue Study Commission
in New York. He told them the "current system is failing,
the highway trust fund is in precarious financial shape, and
the buying power of trust fund dollars is being significantly
eroded by inflation."
Massie further warned the commission
that "we have material price inflation eating more than
30¢ of every dollar in just the last four years and the
growing threat that the cost of labor, which has been relatively
stagnant over the same four-year period, will begin to rise.
We also have the danger that the highway trust fund could
run a significant deficit in the near future. This convergence
will exacerbate the funding gap and our ability to meet the
needs of our already congested and deteriorating highway system."
In other problem areas, contractors are
feeling the consequences of a tighter sureties market. Contributing
writer Sheila Bacon reports that bonding companies are being
much more careful about how they choose clients, with an eye
toward stronger financial margins and high-quality accounting
presentations.
Bruce Buckley's story on the equipment
industry's struggle to meet new air-quality standards reveals
that many contractors are not yet prepared for coming regulations.
"People need to start evaluating
what the cost is going to be to retrofit their existing equipment
compared to the cost of replacing equipment," says AGC's
Brian Deery. "Changes are on the horizon, and they have
to look at those factors as they consider the long-term turnover
of their equipment fleet."
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