FMI predicts three-year contraction in nonresidential construction

FMI’s Construction Outlook, a quarterly construction market forecast developed by FMI’s Research Services Group, forecasts nonresidential construction will plummet and begin at least three years of contraction. The bottom—in terms of both dollar volume and percent decline—will not occur until 2010, the management consulting and investment banking firm for the construction industry says. Residential construction is not expected to recover until 2011.

The First Quarter 2009 Report highlights the following:

• Project delays are four times the normal rate and are currently at 20 percent (up from three times in the third quarter of 2008).
• Project cancellations are five times the normal rate and are currently at 10 percent (doubled from the third quarter of 2008).
• Important legislation to the outlook for construction is the America’s Better Classrooms Act, which provides $25 billion for 0-percent interest school construction bonds.
• The recently passed stimulus bill will not single-handedly save the construction industry.

The $787 billion American Recovery and Reinvestment Act of 2009 (ARRA) consists of $211 billion for tax cuts, around $300 billion for appropriations, and $275 for direct federal spending. According to FMI, only about $94 billion is actually for construction.

According to FMI Construction Economist Heather Jones, author of the report, ARRA stimulus money will work its way into the construction market during the next three to five years. Just over $24 billion will be put in place in 2009; $42 billion in 2010; $17 billion in 2011; $6 billion in 2012; and $5 billion in 2013. Most of the money is designated for highway and transportation projects.

Amidst all the economic doom and gloom, however, FMI reports the following bright spots:

• inflation has remained under control so far;
• prices are down for most materials;
• the stimulus bill will help mitigate some loss; and
• there is still a large amount of construction being put in place.

For more information on FMI’s Construction Outlook, visit www.fminet.com.