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Glass Half Full or Half Empty?

Dec 1, 2007 12:00 PM, By Michael Eby, Editor-in-Chief

In what's become our annual construction outlook issue, we strive to deliver a comprehensive market forecast for the coming year based on reports delivered by key construction economists and researchers in our industry. Although this task involves gathering data from numerous sources and analyzing a lot of tables and graphs, the forecast message to be delivered is typically clear and consistent. Unfortunately, that isn't the case this year. After revising their 2007 estimates several times this year, most (if not all) of these industry experts differ in their analysis and projections of the strengths and weaknesses of the key markets in 2008. So let's take a look at this from two different perspectives.

If I'm thinking like an optimist, I'm feeling pretty good about the coming year. EC&M's Top 40 electrical design firms reported record high revenues last year and generally have a clear and sunny view of the immediate future. Most firms are struggling with recruitment of well-trained candidates and retaining qualified employees. They're also dealing with increased pressure from clients for faster project delivery times and keeping up with new building technologies. Record revenues for EC&M's Top 50 electrical contractors have many firms struggling with labor pains. Many firms are predicting a shortage of experienced personnel to keep up with their heavy workloads. If I'm a business owner, these are the types of problems I don't mind worrying about. I'm also encouraged by forecast reports from Reed Construction Data and FMI Corp. Reed predicts a 7.3% increase in total construction spending for 2008, which includes a turnaround in the new housing construction sector. Although FMI thinks the single-family housing sector will still show a slight decline next year, it expects a healthy non-residential sector to drive positive growth overall. So let the good times roll!

If I'm thinking like a pessimist, however, I'm not sleeping well these days. McGraw-Hill Construction expects another 3.1% decline in single-family housing starts next year, combined with a 1.6% decline in the currently red-hot non-residential sector. Reports from the Portland Cement Association project another bad year for the residential sector (-8.0%), which begins to drag down the non-residential sector (-3.0%) and yields a projected overall decline of 3.7% in 2008. This makes me worry that the mortgage crisis will finally spill over into the non-residential construction market and send the country into a recession — maybe even a depression. If I'm a business owner, I'm starting to reassess my business plans, implement a hiring freeze, and scrutinize my current inventory levels and monthly expenses.

So I guess the question is, are you an optimist or a pessimist? I like to believe that I'm neither one. I try to focus somewhere in the middle of these points of view and remain as even keeled as possible. Applying this line of thinking to this year's mixed bag of construction forecasts makes me believe next year will result in a leveling off of the residential decline and an overall softening of the recent strong growth in the non-residential market. In other words, steady as she goes in 2008 sounds pretty good to me.

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