Economists expect non-residential construction to skirt recession in 2008
Despite the national housing slump, the nation’s overall construction growth will continue to increase at a rate of about three to seven percent this year, with several segments seeing double digit growth. That was the consensus of the Associated General Contractors of America’s third annual economic forecast lead by Ken Simonson, chief economist for the Associated General Contractors of America, Daryl Delano, chief economist with Delano Data Insights and John Cross, vice president of the American Institute of Steel Construction.
While residential markets weathered extraordinary decreases in sales and housing starts in 2007, overall construction spending in non-residential and infrastructure held up last year. Residential construction spending, at its lowest since 1995 as measured by housing starts, will continue to cause some drag on the overall construction numbers in 2008 but Simonson sees reasons to believe the current slowdown will not mimic the economic recession in the early 1990’s.
“If the Fed continues to do what it is supposed to do, we’re down to a manageable 30 to 35 percent chance of recession in 2008,” Simonson said. “We’re entering 2008 with more strength on the non-residential side than we had during the last severe downturn.”
“Housing is going through a natural cycle of supply and demand,” said Cross. “Non-residential construction isn’t being affected by oversupply and there is still potential for growth in some segments.”
In residential areas that are overbuilt, including Arizona, Nevada and Florida, the housing crisis is casting a shadow on non-residential construction financing. Cross and Delano agreed that lenders are tightening their credit requirements, causing borrowers to meet with three or four lenders to line up financing instead of the one or two lenders they worked with in the past. Additionally, if an area hard hit by the housing crisis begins to look blighted, it could affect lenders’ willingness to support commercial projects in the short term, Cross said. Delano said some projects might be put on hold until there is confidence in credit availability, but expect the overall construction economy to ‘just skirt’ a recession in the next six to nine months. Delano said Texas, Utah, Montana and New Mexico are set to weather the downturn well.
Discussing the similarities in the current residential housing downturn and how it affects the nation’s chances of a recession like the one in the early ’90s, Simonson explained the 1991 recession was not due to a residential building decline, but by double digit inflation rates, interest rates and unemployment rates. Simonson pointed out these key rate indicators are currently all in the single digits. “This time we have stable and low interest rates, 4.7 percent unemployment and interest rates for people who have good credit are within a few basis points of where rates were a year ago.” Simonson said he sees the GDP rising in 2008, employment should remain steady and personal incomes will increase.
In response to people quoting the so-called rule of thumb that says non-residential building trends follow residential building trends within 18 months, Simonson said, “Most of the non-residential construction is relatively impervious to what’s happening in the housing market.” According to Simonson, 15 of the 16 non-residential construction sectors saw an increase in spending in 2007, the exception being religious building that is tied closely to the completion of new neighborhoods.
Breaking down overall construction spending by segments, Delano saw strong growth in new hospital construction and healthcare building to accommodate new technologies like MRI equipment. Delano and Simonson agreed changes in the country’s demographics will impact healthcare construction more than other parts of construction. Nationally, the fastest growing part of the population is adults age 85 and over. Residential healthcare construction like assisted living centers is slowing because potential residents are taking longer to sell their existing homes. Even with this exception, Delano doesn’t see a downturn in this sector.
The energy, power and communications sectors should be strong in 2008 as the rush to catch up with the demand for more electricity and refined fuel intensifies. Questions as to where new refineries will be built are yet to be answered, but since no new refineries have been built in 30 years, current plants are increasing capacity. Power plant owners, suffering from a lack of investment in the early part of the decade, are building to increase their generating capacity and installing transmission lines. Simonson said he sees at least a three-year spending increase in the power and energy sectors.
Simonson predicted commercial construction – hotels, offices and retail – will increase spending in 2008 but at a much slower rate than in 2007. Growth in the hotel sector, boosted in 2007 by the building of huge casinos, will increase more slowly due to cut backs in consumer spending and flat business travel.
Time is the answer
What will reaccelerate commercial construction? “Time,” says Delano, until we are through what the Fed calls this ‘rough patch’, the residential market will not come back. And that won’t happen until the current inventory of homes on the market is sold. If all goes according to plan we will see home sales increase in the spring but housing starts will lag until the fourth quarter of 2008. The Fed’s recent actions should create a certain amount of confidence and stabilize the situation, Delano says.
“More likely than not, we’re through the worst of this now,” Simonson says. Delano agrees, saying that markets tied to housing should not deteriorate much more and will begin to build in 2009.
Cross also says that we should not wait for the market to return to a stable environment. “We are in a permanent state of volatility and it’s up to us to change how we deal with the volatility.”.
– Georgia Krause
Pervious concrete working well in cold climates
A field performance investigation on pervious concrete has determined the concrete performs well under freeze-thaw conditions. Pervious concrete, which is often used as pavement for parking lots, allows water to seep through instead of running off the surface. Although the concrete’s usage in warm areas has increased over the past decade, the product was used infrequently in northern locations, where ice forms on concrete surfaces, thaws and then freezes again.
The RMC Research and Education Foundation’s three-year study, Portland Cement Pervious Concrete Pavement: Field Performance Investigation on Parking Lot and Roadway Pavements, was conducted by Professor Norbert Delatte at Cleveland State University and examined sites in Ohio, Kentucky, Indiana and Colorado. Delatte used several tests, including visual inspections, surface infiltration measurements, ultrasonic pulse velocity testing and lab testing performed on cores removed from the test sites. Delatte’s team looked for evidence of clogging, cracking and surface raveling in the test sites. In pervious concrete, freeze-thaw damage would cause widespread raveling progressing through the thickness of the pavement, says Delatte.
At the sites tested, many of which have been in place since 2003, Delatte discovered no evidence of freeze-thaw damage, noting that any damage to the test sites was caused by early age raveling or structural overload. Delatte says the most important factor in preserving pervious concrete infiltration capacity is initial construction – maintenance cannot correct overcompaction or wet mixtures.
The study provides assurance that pervious concrete may be successfully placed in cold climates, says Dominique Calabrese, foundation chairman. “This will result in safer parking lots and roadways with reduced icy conditions as melting snow runs through the pavement rather than refreezing on it.”
The report recommends examining the sites again in five to 10 years. To download the report, visit the Foundation’s website at www.rmc-foundation.org.
– Amy Materson
Terex acquires ASV
Terex Corporation has announced the intention to purchase Grand Rapids, Minnesota-based ASV, a manufacturer of compact rubber track loaders. The transaction, which is expected to close by the end of the first quarter in 2008, is valued at approximately $488 million. Ronald M. DeFeo, chairman and chief executive officer, Terex, says the addition to the company’s compact equipment line will enhance future earnings growth potential. “We expect ASV will add approximately $220 to $250 million in sales on a 2008 full-year basis.”
Caterpillar currently owns 23.5 percent of ASV shares, but supports the merger and will tender its shares, says Mike Bazinet, director, Global Communications, Terex. “ASV, as part of Terex, will continue to build undercarriages for Caterpillar machines,” he says.
Bazinet says an integration team will evaluate strategies to add value to the ASV brand and its distribution network while leveraging the existing brand equity of ASV technologies for Terex.
– Amy Materson
Doosan Infracore Portable Power acquires manufacturing facility
Doosan Infracore’s recently acquired Portable Power business unit has announced the purchase of a manufacturing and office location in Statesville, North Carolina, where it will produce air compressors, light towers and portable generators. The move is expected to create 60 new jobs in Iredell County, North Carolina, with the overall number of employees at the site reaching close to 400.
Kubota to export tractors made in Thai plant
Kubota plans to export low-priced tractors manufactured at its new plant in Thailand to the United States and Europe, according to the company’s president, Daisuke Hatakake. Kubota announced its entry into the Thai market earlier this year, due to expected demand from the country and neighbors such as Vietnam.
Topcon GNSS adds China’s Compass signal
Topcon Positioning Systems has tracked signals from China’s Compass satellite constellation, which consists of 35 satellites offering coverage of the entire world. With the addition of the Chinese system, Topcon increases the number of satellites available for its positioning products. Topcon’s GNSS technology can also pick up signals from the U.S. GPS system, Russia’s GLONASS system and the European Union’s Galileo system.