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AIA Forecasts Decline in Nonresidential Construction Spending in 2011, Modest Growth Projected for 2012

Jul 28, 2011 12:30 PM

A multitude of factors are preventing a recovery for the beleaguered design and construction industry. Lenders that have been extremely reticent to finance construction projects, budget shortfalls at all levels of government, the ripple effect of overbuilding, a depressed housing market, and rising costs of key construction commodities are all contributing to what projects to be a decline of 5.6% in spending this year for nonresidential construction projects. The American Institute of Architects (AIA) semi-annual Consensus Construction Forecast, a survey of the nation’s leading construction forecasters, also projects a 6.4% increase of spending in 2012.

“Consumer and business confidence is poor and the overall economy has yet to pull out of the downturn that began in 2008, which both add to the general sense of anxiety and uncertainty in the real estate market” said AIA Chief Economist, Kermit Baker, Ph.D., Hon. AIA. “Spending on renovations of existing buildings has remained strong, but the depressed demand for new construction isn’t likely to improve until next year, led by the commercial sector: offices, retail, and hotels.” Baker added, “Steel, copper and aluminum have all increased 10% or more in the past year, offsetting declines for lumber and concrete products. Rising energy costs have also been central to the unusual volatility in building material prices”

Though the AIA does not provide regional construction forecasts, there is evidence that some areas of the country are recovering faster than others. According to the U.S. Department of Labor’s payroll surveys:

• Michigan leads the country with a 5.2% increase in construction payrolls in the last year
• Hawaii, Texas, Tennessee, Oklahoma, Kansas, North Dakota, Illinois and Washington, DC have had gains of 3% or more
• Nevada and Rhode Island have each lost 10% or more of their construction pay rolls

According to the Federal Reserve Board’s Summary of Commentary on Current Economic Conditions from early June, noted that nonresidential construction, rose modestly in the Boston, Chicago, Minneapolis, and Dallas districts. More broadly, a number of districts expressed a general sense of optimism for the second half of 2011.

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