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Construction activity to recover quickly in 2003 after further declines in 2002

Nov 7, 2001 12:00 PM

The economic aftershock of September 11 is further weakening a soft housing and construction market and will continue to do so through 2002, but activity is expected to recover in 2003. Speakers at the CMD North American Construction Forecast Conference, held October 16 in Washington, D.C., predicted a 6.3% decline in North American construction activity in 2002, a decrease that comprises a 10% drop in private, nonresidential construction spending and an 8.5% decline in residential housing sales.

The industry had already shown signs of slowing down in 2001, as nonresidential construction had decreased 5.4% and residential housing starts had only increased 1.2%, but the September 11 terrorist attacks have forced market analysts to reconsider their predictions for the coming years.

Bill Toal, chief economist for the Portland Cement Association, revised his growth rate predictions for 2002 to 1.8%, down from his prior forecast of 2.7%. Toal attributes the slowdown to the increased strain the September 11 attacks imposed on an economy that was already “weakening significantly.”

On the other hand, Glenn Mueller, professor, Johns Hopkins University Real Estate Institute and managing director for Real Estate Investment Strategy, Legg Mason, believes the construction slowdown for the retail, industrial, and commercial markets was destined to come about sooner or later, with or without the terrorist attacks. According to Mueller, demand for office construction was high in the late ‘90s and money to pay for it was plentiful, creating an environment conducive to large gains in the market. Now that the demand has reached equilibrium, construction in these segments will drop off, regardless of other market factors.

Despite the prophecies of doom and gloom, however, Toal and David Seiders, chief economist for the National Association of Home Builders (NAHB) point out that current construction activity is still higher than it was during the late ‘80s and early ‘90s. In fact, even with the 6.3% decline predicted for 2002, construction spending will still be slightly above 1998 levels.

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