McGraw-Hill Construction Forecasts Flat Year for Construction Market in 2012

Oct. 21, 2011
Lingering doubts in the minds of business executives and consumers about the health of the U.S. economy, uncertainty over the political turmoil in Washington,

Lingering doubts in the minds of business executives and consumers about the health of the U.S. economy, uncertainty over the political turmoil in Washington, D.C., and weak demand may choke off any significant growth in the 2012 construction market.

That's the consensus of the construction economists at McGraw-Hill Construction Outlook 2012, held Oct. 19 in Washington, D.C. Considering the double-digit declines the industry suffered through the past three years, things could be worse than a year of no growth. But compared to the pinch-me-I-can't-believe-it's-real highs of the 2006-2008 construction market, the new normal doesn't feel so hot.

With the exception of the multi-family housing market, which McGraw-Hill expects to grow 18 percent in 2012 to 205,000 units, progress will be slow — and hopefully won't be torpedoed by a double-dip recession. Overall, McGraw-Hill Construction expects the level of construction starts in 2012 to be $412 billion, following the four percent decline to $410 billion predicted for 2011.

“The corner is being turned, but it's being turned in an ever-so-slow and uneven manner,” said Robert Murray, V.P. of economic affairs for McGraw-Hill Construction.

While he believes the economy will escape the dreaded double-dip because of an improving commercial lending environment, another speaker, Beth Ann Bovino, deputy chief economist for Standard & Poor's, pegged the likelihood of a double-dip recession at 40 percent. “Recovery has begun but it's likely to remain weak,” she said. “If there is a recession it will be mild, maybe a one-percent decline.”

While most of the construction forecast data presented at the event was rather sobering, there was a sense that things are finally moving in the right direction, even if any increases in the key segments of the construction market are baby bounces off near-historic market bottoms, and even if the possibility of a double-dip recession is partially obscuring what Murray said were some “glimmers of hope” for 2012. He was particularly enthused about the commercial lending environment, where the volume of loans has increased seven percent since Oct. 2010. It started gathering steam this year, and lending helped some mega-projects in New York, Washington, D.C., Chicago and Seattle break ground.

“The construction industry has struggled to see recovery take hold over the past couple of years,” Murray said in a press statement. “After plunging 24 percent in 2009, new construction starts leveled off in 2010 and have hovered within a set range during 2011.

“The backdrop for the construction industry is the fragile U.S. economy, which continues to see slow employment growth, diminished funding from federal and state governments, and pervasive uncertainty. In 2012, the top-line numbers are not expected to show much change, but there will be variation within the major construction sectors, with some gains predicted for housing and commercial building, assuming the U.S. economy avoids recession.”

While the single-family housing market is still soft, according to McGraw-Hill's 2012 forecast it will improve 10 percent in dollars and seven percent in the number of units. Murray said this is still a low amount, as the excess supply of homes due to foreclosures continues to depress the market.

Another speaker at McGraw-Hill's 73rd annual outlook conference, Kermit Baker, chief economist, American Institute of Architects (AIA), Washington, D.C., said the industry consensus is that there will be 753,000 total housing starts in 2012 and just over one million in 2013. He said the slow recovery in the housing market is due in large part to the hesitancy of first-time homebuyers to jump into the market and the lower-than-expected rates of immigration in recent years, which economists thought would fuel growth in this market segment.