HVAC Light Commercial Market / HVAC Commercial Market

Construction Recovery Predicted for 2013

January 3, 2013
Trans

The final construction numbers for 2012 aren’t all tabulated yet, but the Associated Builders and Contractors Inc. (ABC) is making predictions about what some sectors of the construction market will look like in 2013. Nonresidential construction is predicted to expand by 5.2 percent next year according to Anirban Basu, chief economist for ABC.

“Given the remarkably deep reductions in nonresidential construction spending since the onset of the downturn, one would expect more robust growth during the fourth year of broader economic recovery,” he said in an early December release.

“Despite ongoing slowdown in many of the world’s largest economies, ABC anticipates many investors will opt to invest in hard assets as a way to avoid volatility in equity and bond markets.”

Overall, ABC expects total commercial construction to grow about 10 percent. Segments such as lodging and healthcare are expected to be up 8 and 5 percent respectively.

“Due largely to constrained capital budgets at state and local government levels, as well as ongoing turmoil in Washington, D.C., publicly funded construction spending is expected to be flat next year, and perhaps worse,” explained Basu. “Much of commercial construction spending will likely come from private financing.”

Residential construction is trending toward a continued increase as well, said Ken Simonson, chief economist for the Associated General Contractors of America (AGC). His summary for 2012 residential construction forecasts that it will be up approximately 10 to 15 percent. That increase is expected to continue slightly, but uncertainty about how the government will handle taxes and spending cuts in the near term is making economists a little cautious.

“The threat of the ‘fiscal cliff’ — automatic tax increases if current provisions are not renewed after Dec. 31, plus federal spending cuts — is already having an effect on construction employment, according to a survey of 551 construction firms AGC conducted in the last days of November 2012,” said Simonson. “Roughly 54 percent of firms report the threat of tax hikes has forced them to adjust their business plans in regards to hiring and capital expenditures.”

As for 2013, Simonson highlighted some possible trends in his “Construction & Materials Outlook” report released Nov. 14. In it he expects total construction spending to increase 6 to 10 percent per year from 2013 to 2017.

“There may be less housing and retail projects, and I am expecting a decline in public spending,” he noted. “Labor and material costs are expected to rise 2 to 4 percent, and materials should go up 3 to 8 percent as well.”

One trend that Simonson notes is becoming more prevalent, and he thinks will continue to trend up from 2013 to 2017, is the increased popularity of multifamily construction as opposed to single-family construction.

Construction Numbers Review

While looking at plans for the first quarter of 2013, HVAC contractors might find it helpful to not only take a look at what economists are forecasting, but to also look at some of the highlights of the 2012 construction market.

In the first quarter, January to March, January construction unemployment dropped from 8.5 to 8.3 percent according to the Bureau of Labor Statistics (BLS). Construction employment rose by 21,000 jobs and housing starts and building permits increased as well. All sectors but nonbuilding construction decreased mildly. Spending dipped in January, but year-over-year, 2012 continued to be better than 2011 according to AGC. The job outlook in February was up-and-down, and construction spending dropped for the month but remained up year-over-year.

The second quarter saw continued dips in construction employment; however, Simonson reported, “Architectural and engineering services employment, a harbinger of future demand for construction, climbed for the sixth straight month, to the highest level since May 2009.” Payroll employment and construction spending continued to edge up in the second quarter as unemployment continued to drop. June brought a stall to some of the second-quarter construction hiring, and new construction starts slipped approximately 1 percent.

July numbers continued to edge lower at the beginning of the third quarter, according to AGC, but August numbers pushed upwards and September ended on a positive note. The housing starts jumped 15 percent, according to the BLS, and building permits increased 12 percent.

Fourth Quarter and Holding

The final quarter of 2012 is not in the books yet, but October construction spending was up 9.6 percent over October 2011, according to the BLS.

“During the first 10 months of this year, construction spending amounted to $707.4 billion, 9.3 percent above the $646.9 billion for the same period in 2011,” said the BLS in its monthly report.

The agency also reported that private construction was up 1.6 percent, residential construction was up 3 percent, and nonresidential construction was 0.3 percent above the revised September estimates.

October’s public construction figures from the BLS showed that public construction spending was up 0.8 percent above the September estimate, totaling $280 billion.

“Educational construction was at a seasonally adjusted annual rate of $69.3 billion, 0.9 percent above the revised September estimate of $68.6 billion,” said the BLS.

The final two months of construction reports will not come out until January and February of 2013. Despite that, Simonson is reporting weekly figures as they come in and so far, some of the numbers are trending slightly downward one week and then slightly upward the next. No big jumps have occurred and as the construction industry, as well as much of the economy, waits on a decision from Congress about the fiscal cliff, there isn’t a lot of movement expected to occur in the next few weeks.

For more information, visit www.bls.gov, www.agc.org, or www.abc.org.

Publication date: 12/24/2012

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