The Sky is Falling

Dec 1, 2008 12:00 PM, By Michael Eby, Editor-in-Chief

Most everyone has read the children's story “Chicken Little.” Although the story is meant to teach courage, it can also be interpreted to mean “don't believe everything you hear.” But if you're like me, with today's current and projected economic conditions, it's becoming harder to avoid getting a Chicken Little complex. It appears we've run into the perfect storm in the construction industry. Basically, all markets are projected to be down — now and into the foreseeable future. It appears the non-residential market sectors, which have carried us through the past few years, have finally run out of steam — prior to a recovery in the residential sector, which has yet to make the turn from its catastrophic downward slide. Unfortunately, this sentiment is shared by the majority of notable construction economists, trade associations, and research groups. Here is a snapshot of what they see ahead.

FMI is projecting an overall decline in spending of 7.4% next year. The residential sector is expected to dive down another 7% while the non-residential spending level is expected to take an even bigger hit — a 12.5% drop. The only bright spot in its report is in the manufacturing sector.
The U.S. Dept. of Commerce is also forecasting substantial declines in the commercial (-25%), lodging (-22%), and office (-18%) markets. It's predicting declines in almost half of the non-residential categories. This equates to an overall decline of construction put-in-place values of 7.5%. It also expects to see another 12.5% decline in the residential market sector.
McGraw-Hill Construction is forecasting a 9.7% decline in the value of non-residential project starts next year, along with a 2.7% decline in the residential sector. In fact, this group is forecasting a decline in every major category tracked.
The Portland Cement Association's forecast also predicts substantial declines in construction put-in-place figures for every major construction category (-23.1% in the non-residential sector and -17.9% in the residential sector). Overall, this group is forecasting a 13.9% decline in total construction for 2009.
Reed Construction Data is the only one of this group to forecast a slight increase in both non-residential (1.2%) and overall (0.7%) construction spending levels next year. Hey, at least someone is showing a little optimism about next year's work levels.

Given these sobering statistics, what should you do now? For one, don't follow Chicken Little's lead. Running around in a panic and getting everyone else you know worked into a frenzy will do more harm than good. Nor should you bury your head in the sand and ignore all the bad reports you keep seeing of late (mine included!). Now is the time to reposition yourself or your firm for future success. But just how do you go about doing this? You should start by reading “Strategies for Hard Times” on page 30 of this month's cover story. There are some great tips listed here, which we should all think about implementing immediately.

I believe you should also start paying close attention to public construction. It's clear that President-Elect Obama and his new administration plan to push for the largest U.S. public works program since the creation of the interstate highway system some 50 years ago. This type of massive government spending program would provide a boost to the power, highway and street, sewage and waste disposal, water supply, and public security market segments. Energy-efficiency projects for public buildings and the renovation of aging schools would also benefit from this type of spending.

Here's one last tip to keep in mind during these difficult times: If you fall prey to a sly fox, then you just might find yourself out of work or shutting down the business you've poured your heart and soul into for so many years.