Fails Management Institute recently issued their construction market forecast. Below is a summary provided by Reed Construction Data:
The Good, the Bad and the Ugly, FMI’s Construction Market Forecast
-- Associated Construction Publications, 12/11/2008
Its that time of the year and everyone seems to have a construction market forecast, some significant and perhaps some not-so-significant. Unfortunately one thing they all seem to have in common is a gloomy outlook.
FMI’s recently released report is no exception. FMI provides management and investment banking for the worldwide construction industry.
It’s Construction Outlook: The Fourth Quarter 2008 Report, takes a look at the good, the bad and the ugly of the economic future of construction.
- The Good: Nonresidential construction will close out 2008 in positive territory, marking five straight years of growth.
- The Bad: 2009 will bring an end to the cycle with a significant downturn in growth. However, it should be the bottom in terms of percent declines.
- The Ugly: The downturn of growth in 2009 will continue through 2010 which should mark the bottom in terms of dollar volume. Transportation construction is the only nonresidential segment likely to grow in 2010.
However, the housing sector has good long-term growth prospects, notes FMI’s report. With the population expected to increase by 100 million people over the next 30 years, there will have to be more housing. This population growth and eventual increase in residential construction also bodes well for the future growth of nonresidential construction.
Another important indicator for construction is the federal funds rate which as of the end of October was at its lowest rate since 2003 at 1%. The Fed said the "intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of household and business to obtain credit."
Infrastructure Bill Not Considered
An interesting note about FMI’s Construction Outlook is that the researchers assumed that a massive federal infrastructure spending bill would not be passed and put into construction during the forecast period. The report notes that the timing and amount (if any) of such as bill was unknown. An infrastructure bill now seems far more likely.
FMI notes that if a major infrastructure package is passed, it will take time to be worked into actual construction, citing federal money given to New Orleans post-Hurricane Katrina versus the actual amount of construction that has been put in place.
"Construction needs time to be planned, designed and also approved," the report notes. "There is also no guarantee that any funding from a new package would be used in addition to the old source. For example, if federal funds were given to a state for highway and street projects, it is possible that the state could use the federal money and then reallocate the old highway money to another area of need such as paying off interest on its bonds. If this occurs, no additional construction is actually built." The report also notes that the source of funding for a major infrastructure package is in question.
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