AIS Top Economist Sees Construction Recovery Soon
According to Baker, there is a new wave of cyclicality that is being seen in construction. Non-residential construction has always been characterized by wide swings of activity from year to year. While the overall economy stays in a fairly narrow growth band, rarely seeing growth of 5%, double-digit rates of growth for construction are not at all uncommon.
"If you look at the most recent 13-year period, non-residential construction declined in six of those years," Baker said. "Three of the 13 years saw double-digit growth. So even during a period of stable national growth, non-residential construction could not avoid its traditional boom or bust conditions. As the broader economy turns to a greater cyclicality, we can expect greater swings in the construction sector moving ahead," he said.
A recovery in construction activity can be expected later this year, due to the number of inquiries received by architecture firms of late. From a regional perspective, construction activity in the Northeast is volatile. It was strong early last year, then took a substantial dip in recent months and is just beginning to see signs of recovery. Firms in the Midwest are reporting more stable levels of activity.
The South has been the strongest region in terms of construction activity in recent years. The West, like the Northeast, has seen very volatile business conditions. It also has been the region hardest hit over past years in terms of business conditions. However, recent numbers have been quite encouraging for firms in the West.
According to Baker, the commercial and industrial markets are projected to continue to be weaker than the institutional markets overall for 2003. The institutional sector has generated more optimistic signs, according to U.S. architecture firms. More than a third of the firms rated healthcare as strengthening and 12% said it was weakening in the markets they serve. The overall institutional construction market saw a small gain last year, but will be essentially flat this year.
Overall, this year is shaping up as a transition year for the non-residential construction sector. The commercial and industrial sectors are going through some changes that will ensure better numbers next year, while the institutional sectors are fighting their way through a funding problem caused by the stock market slump and government deficits. Still, the institutional sector should see relatively stable levels in construction for the remainder of 2003 and through 2004.