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Economists Foresee Bigger Industry Changes This Year
By Mark J. Shaw, Editor-in-Chief
 There are plenty of old lawyer jokes that could be adapted to work just fine for economists.
Q: What do you call an economic prediction that actually comes true?
A: A Lucky Strike.
Q: How many economists does it take to change a light bulb?
A: None, they like being in the dark.
Q: When should you trust an economist?
A: Has “it” frozen over yet?
And so on. But in January we hang on their every word, hoping some good news will slip through the sweet-and-sour notes of their annual outlooks.
This year the news isn’t so bad, but it’s not good either and, of course, economists don’t agree on exactly where the construction industry will be by the end of 2008.
In this issue of Constructor, AGC Economist Ken Simonson says that the construction industry will go from the “heaven” of 2007, where total spending on nonresidential construction climbed 15% in the first 10 months of the year, to a “much more uneven” 2008, with “steep slides in both single- and multifamily residential construction” fueling a downturn. There are bright spots. “2008 will be a solid year for many types of industrial and institutional construction but a year of meager growth or slippage for most income-producing properties, highway and school construction,” he says, with industry growth somewhere in the 3 to 7% range nationwide.
McGraw-Hill’s Robert Murray, vice president of economic affairs, predicts an overall 2% drop in construction starts in 2008, with tightened lending conditions impacting development in both residential and commercial real estate. “The credit crunch is the biggest threat to the construction industry going into 2008,” he says.
Murray says that after record value increases of 27% in 2006 and 7% in 2007, the commercial construction sector has peaked and forecasts that it could drop 6% to $91.1 billion in 2008, with a retreat in office, retail, multifamily and manufacturing sectors.
However, both economists foresee continued stability in health-care, institutional and public-works projects, but warn about increasing labor costs and unpredictable fuel prices.
Other industry watchers, such as ZweigWhite, agree that health care, higher education, K-12, telecommunications and power and energy will be among the hottest markets for design and construction firms in 2008, but residential construction will continue to decline through at least the first half of this year. Most industry leaders remain confident about commercial construction in 2008, with 50% of ZweigWhite’s annual survey respondents saying they expect the industry to outperform the U.S. economy in 2008. Only 16% expect it to do less well than other economic sectors.
FMI Corp. is not predicting a national recession or a downturn in nonresidential construction in 2008, although the outlook is “tipped slightly downward.” FMI says that nonresidential construction will increase again this year, although at a slower rate of around 5% in 2008 and 4% in 2009, as declines in the residential sector begin to lessen the demand for some nonresidential markets. The single-family sector is not expected to begin recovering until 2009, but this year will see a smaller decline in housing starts.
Other topics covered in this issue include a look at changes in the workers’ compensation market this year, pending OSHA reforms, red flags in construction contracts and the need for big changes in the management of risk to keep up with new technologies and project delivery methods.
Reporter Debra Wood examines what needs to happen for insurance companies to keep up with sea changes in the construction industry, including BIM and globalization.
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