Construction Trends

May 2008

Nation Now in Mild Recession, Says NAHB Chief Economist The deepening slump in the nation’s housing markets has seriously eroded consumer sentiment and pushed the economy into a mild recession, according to the chief economist for the National Association of Home Builders, Washington, D.C.

"The worse-than-anticipated housing downturn, combined with systematic weakening of the labor market and rapidly rising energy and food prices, has taken a heavy toll on American consumers,” said NAHB’s David Seiders. "It’s now clear that we have entered what we anticipate will be a mild recession, running through the first half of this year, and there are substantial downside risks to this economic scenario.”

To guard against a longer and deeper downturn, Seiders said that Congress should take immediate steps to stimulate the economy through actions specifically targeted at improving the ailing housing market—such as a temporary home buyer tax credit, modernization of the Federal Housing Administration and oversight reform for the housing-related government-sponsored enterprises.

Given the ongoing erosion in housing finance markets and buyer demand, Seiders has adjusted NAHB’s official housing forecast to indicate continuing downward movement in housing starts through the end of 2008, bringing the decline for the year to 30 percent. A month ago, Seiders expected housing starts to bottom out in the third quarter, with a 27 percent decline for 2008.

"This change in our forecast indicates that, barring immediate action by Congress to stimulate housing and the economy, the housing sector will continue to be a serious drag on economic growth until the beginning of 2009,” Seiders said.

"Stimulus bills recently passed in the Senate and the House Ways and Means Committee are welcome steps in the right direction. This is one instance where prompt and appropriate efforts by the nation’s lawmakers could make a significant difference in limiting the depth and duration of the economic downturn.”

Residential Construction Hits Another Low
New home construction, already battered by a national housing downturn of historic proportions, is now at its lowest level in 17 years, according to a report released April 16 by the U.S. Commerce Department. In March, privately owned housing starts were running at a seasonally-adjusted annual rate of 947,000. That represents a staggering 36.5 percent decline from one year ago. Overall, privately owned housing starts are at their lowest level since March 1991, when the U.S. economy was mired in a recession. Last month, privately-owned housing starts were down 11.9 percent from February’s revised estimate of 1,075,000 units.

Two-thirds of the monthly decline in housing starts were attributable to a pronounced drop-off in multifamily starts, which were down 24.6 percent in March compared to February. Single-family starts totaled 680,000 units in March, down roughly 5.7 percent from one-month prior. Starts in January and February were revised upward by a total of 22,000 units.

The Midwest reported the largest one-month decrease in total privately owned housing starts, with starts down 21.4 percent in March. The South followed with a 12.6 percent decline. The Northeast and West experienced a drop in housing starts of 8.5 percent and 5.7 percent, respectively.

What does this mean for builders?

Associated Builders and Contractors is advising its members to be cognizant of the fact that the economics of deflation are now at work, which means that many would-be home buyers will continue to wait to purchase as housing prices continue to decline. Consequently, the residential marketplace will continue to suffer low sales volume, depressed construction activity and falling prices. Certain industrial and commercial builders stand to be particularly impacted by the ongoing housing downturn, including those who serve the building material manufacturing industry or supply office space in markets with high concentrations of consumer and mortgage finance services.

Meanwhile, homebuilders across the nation continue to look for light at the end of the tunnel, but that light is not yet apparent. ABC concludes that the inventory of unsold homes remains elevated in many areas, which serves as an obstacle separating buyers from builders. Given the ongoing foreclosure crisis impacting a growing set of American communities and the broadening of recessionary conditions to an expanding set of industries, conditions are likely to deteriorate further before they improve. The active inventories of homes will continue to bulge even as more Americans disengage from the market due to growing job security concerns. And, while many Realtors remain busy showing properties, they are seeing far too few settlements.

Housing Starts Fall Further in March
Builders continued to reduce the pace of new-home construction in March amidst ongoing erosion in the overall economy and credit markets, according to the latest figures released April 16 by the U.S. Commerce Department. Total housing starts fell nearly 12 percent to a seasonally adjusted annual rate of 947,000 units for the month, while single-family starts fell 5.7 percent to a rate of 680,000 units.

The single-family side of the housing market continued to display persistent and sizeable declines in both new-home starts and permits for new construction in March, with starts down 5.7 percent to 680,000 units and permits down 6.2 percent to 606,000 units. Meanwhile, the multifamily side continued to display extreme month-to-month volatility in starts and permits, with 24.6 percent and 5 percent declines, respectively.

Regionally, housing starts were down across the board in March, with an 8.5 percent decline registered in the Northeast, a 21.4 percent decline in the Midwest, a 12.6 percent decline in the South and a 5.7 percent decline in the West. Permit issuance was mixed by region, with gains of 3.8 percent and 0.4 percent registered for the Northeast and South, respectively, and declines of 10.6 percent and 20 percent registered for the Midwest and West, respectively.

February Construction Rises 2 Percent
At a seasonally adjusted annual rate of $561.3 billion, new construction starts in February advanced 2 percent from the previous month, reports McGraw-Hill Construction, a division of The McGraw-Hill Companies. The gain for total construction reflected a strong performance by nonresidential building, which for the second month in a row was boosted by groundbreaking for several very large projects. At the same time, nonbuilding construction (public works and electric utilities) fell back from January’s elevated pace, and residential building dropped further as its lengthy correction continues. For the first two months of 2008, total construction on an unadjusted basis came in at $79.1 billion, down 18 percent from the same period a year ago. If residential building is excluded, the value of new construction starts during the first two months of 2008 increased a slight 1 percent compared to last year.

February’s data lifted the Dodge Index to 119 (2000=100), up from 117 in January. After weakening substantially during the latter half of 2007, the level of contracting has now shown improvement for two consecutive months.

Nonresidential building in February surged 23 percent to $270.5 billion (annual rate), continuing its rebound from the depressed activity at the end of 2007. Hotel construction had a particularly strong February, soaring 94 percent. Store construction jumped 30 percent, warehouse construction rose 6 percent, and manufacturing plant construction climbed 36 percent. Offices were down 23 percent.

Residential building in February dropped 3 percent to $185.3 billion (annual rate). Single-family housing fell an additional 6 percent, and the weakness was widespread geographically, as shown by this regional pattern: the Midwest, down 16 percent; the South Atlantic, down 7 percent; the West, down 4 percent; the Northeast, down 3 percent; and the South Central, down 2 percent.

Multifamily housing increased 6 percent, but it is still trending downward; the February pace for multifamily housing in dollar terms was 28 percent below the monthly average for 2007.

The 18 percent decline for total construction during the first two months of 2008, compared to last year, was the result of this behavior by major sector: nonresidential building, up 10 percent; nonbuilding construction, down 14 percent; and residential building, down 41 percent.

By geography, the first two months of 2008 showed a greater dollar amount of construction starts in the Northeast, up 19 percent. The other four regions showed declines for total construction relative to last year: the West, down 13 percent; the South Central, down 19 percent; the South Atlantic, down 31 percent; and the Midwest, down 34 percent.

Builder Confidence Remains Unchanged in April
Builder confidence in the market for new single-family homes remained unchanged for a third consecutive month in April, according to the National Association of Home Builders/Wells Fargo Housing Market Index, released April 15. The HMI held at 20, up marginally from the record low of 18 set in December 2007 (the series began in January 1985).

"With the traditional home buying season now well under way, we have not seen the bump in sales activity that we normally would this time of year,” said Sandy Dunn, NAHB president and a home builder from Point Pleasant, W.Va. "At this point, all eyes are on Congress and its efforts to craft meaningful legislation to help support the housing market and stabilize our nation’s economy before it heads deeper into recession.”

"While builders continue to report improvements in traffic through their model homes compared with late last year, this activity has not translated to actual sales. That’s where Congress can make a big difference,” noted NAHB Chief Economist David Seiders. "Measures that stimulate consumer confidence in the housing market, push the fence-sitters into the ring and put a floor under house prices can successfully halt the drag that housing is exerting on the national economy, and help stabilize financial markets at the same time. But such measures need to be implemented as soon as possible in order to limit the severity of the economic recession that now is underway.”

Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as "good,” "fair” or "poor.” The survey also asks builders to rate traffic of prospective buyers as either "high to very high,” "average” or "low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.

The HMI’s component index gauging current sales conditions declined two points to 18 in April, its lowest level since November of last year. The component gauging traffic of prospective buyers held even at 19 for a third consecutive month, up from a low of 13 last December. The component gauging sales expectations for the next six months rose four points to 30, although this measure was down substantially from a year earlier.

Regionally, HMI results were mixed this month, with a one-point gain to 22 registered in the Northeast, a one-point decline to 15 registered in the Midwest, a two-point decline to 24 posted for the South and a two-point gain to 17 posted for the West.

Affiliated Distributors and AMAROK Merge
Affiliated Distributors, the largest wholesale buying and marketing group in North America, has formed a partnership with AMAROK, a drywall distributive cooperative. At an AMAROK meeting at the end of March, a majority of AMAROK members voted to merge with A-D.

AMAROK will finish out its fiscal year June 30, 2008. Then, on July 1, 2008, AMAROK will become the AMAROK Drywall Division of Affiliated Distributors.

A-D is comprised of more than 370 independent distributor companies with more than 3,000 locations in the United States and Canada. Its membership commands over $25 billion in sales across five construction-related industries.

Formed in November 1996 to maximize the strengths of independent wall and ceiling distributors throughout the United States, today AMAROK serves more than 170 member-owners with more than 300 locations nationwide.

Gypsum & Anhydrite Market to Reach 132 Million Metric Tons by 2010 The future of the gypsum industry, mainly in North America, is largely dependent on the construction industry, where the residential market comprises the main driving force and holds nearly 65 percent of demand for gypsum products. Against this backdrop, a new report from Global Industry Analysts, Inc. says that the world market for gypsum and anhydrite is set to reach about 132 million metric tons by 2010.

Gypsum products are capable of surviving heavy construction traffic without powdering, dusting, cracking, or chipping. The major use of gypsum is in the building industry where it is used to produce plasterboard/wallboard and in portland cement. Gypsum is used in combination with a wide range of floor coverings such as wood laminate, hard wood flooring, carpeting, vinyl and ceramic tiles. The advantage of gypsum is that the 1/4 in. floor is generally ready within a week’s time for applying finishing material, while concrete floors requires about a month’s time. Demand for gypsum floor underlayments is steadily growing due to its increased compressive potential.

The United States, Europe and Asia-Pacific form leading markets for gypsum and anhydrite, collectively accounting for 80 percent of global demand in 2008, as stated by recent report published by Global Industry Analysts, Inc. In terms of growth, Asia-Pacific and Latin America are forecast to register the fastest compound annual growth rates over the analysis period. Analyzing the market by end-use applications, prefabricated products represents the largest consumption sector for gypsum and anhydrite, accounting for 76 percent of the demand in 2008. In the United States, as in other industrialized nations, major use of gypsum is in the manufacture of gypsum wallboard products. Demand for gypsum and anhydrite in the production of portland cement in the United States is projected to reach 3.5 million metric tons by 2010.

Key players profiled in the report include Eagle Materials Inc., Georgia-Pacific Gypsum, Knauf AG, Lafarge SA, National Gypsum Company, Saint Gobain SA, and USG Corporation.

For more details about this research report, please visit http://www.strategyr.com/Gypsum_And_Anhydrite_Market_Report.asp

Newly Released Studies Confirm Energy Savings Significant in LEED®, ENERGY STAR Buildings
Two recently released studies, one by the New Buildings Institute and one by CoStar Group, have validated that third party certified buildings outperform their conventional counterparts across a wide variety of metrics, including energy savings, occupancy rates, sale price and rental rates. Will the survey results further fuel the "green” building trend?

In the NBI study, the results indicate that new buildings certified under the U.S. Green Building Council’s LEED certification system are, on average, performing 25 percent to 30 percent better than non-LEED certified buildings in terms of energy use. The study also demonstrates that there is a correlation between increasing levels of LEED certification and increased energy savings. Gold and Platinum LEED certified buildings have average energy savings approaching 50 percent.

The study also explored energy savings under the Environmental Protection Agency’s ENERGY STAR program. Buildings that have earned the ENERGY STAR label use an average of almost 40 percent less energy than average buildings, and emit 35 percent less carbon.

According to the CoStar study, LEED buildings command rent premiums of $11.24 per square foot over their non-LEED peers and have 3.8 percent higher occupancy. Rental rates in ENERGY STAR buildings represent a $2.38 per square foot premium over comparable non- ENERGY STAR buildings and have 3.6 percent higher occupancy.

The group analyzed more than 1,300 LEED Certified and ENERGY STAR buildings representing about 351 million square feet in CoStar’s commercial property database of roughly 44 billion square feet, and assessed those buildings against non-green properties with similar size, location, class, tenancy and year-built characteristics to generate the results.

The NBI study was funded by USGBC with support from the U.S. Environmental Protection Agency and can be accessed at www.usgbc.org. For more information on the CoStar study, visit www.costar.com.

CSI Releases Draft of UniFormat for Public Comment
The Construction Specifications Institute, Alexandria, Va., has released the first draft of a revision to the 1998 version of UniFormat for public comment. The construction community is invited to comment on the draft. All comments received before June 15, 2008, will be considered by the UniFormat Task Team.

UniFormat provides a uniform classification system for organizing construction information into a standard order, based around functional elements. Functional elements, often referred to as systems or assemblies, are major components common to most structures that perform a given function regardless of the construction method or materials used to achieve that function. Because the functional element classifications provided by UniFormat are standardized, users can easily understand and compare project information across project types or options.

The use of UniFormat can also provide consistent comparable data across an entire building life cycle. The use of UniFormat’s elemental framework reduces the time and cost of evaluating alternatives in the early design stages of a project, assuring faster and more accurate economic analysis of alternative design decisions.

CSI plans to publish a revised version of UniFormat near the end of 2008, after the review comments have been received and analyzed by the task team and others involved in the process. This revised version of UniFormat will be coordinated with MasterFormat 2004, but will only cover building construction topics. The following year, the task team will work to expand UniFormat subject matter to cover all types of construction.

The draft can be accessed by visiting www.csinet.org/uniformat (or go to www.csinet.org/, click "Standards & Formats” and then click "UniFormat”). Comments can be made on this draft by sending an e-mail to Greg Ceton, CSI’s technical program manager, at gceton@csinet.org, or by visiting the CSI Forums at www.csinet.org/ and posting a comment in the UniFormat Forum.

The public review and comment period will remain open until June 15, 2008.

OSHA Implements RSS Feeds for Its Communications Products
The U.S. Department of Labor’s Occupational Safety and Health Administration has implemented Really Simple Syndication Feeds to provide OSHA customers a personal, direct channel for receiving the latest news and information from the OSHA Web site.

RSS is a Web-based technology used by businesses, organizations and government to publish frequently updated content. OSHA news releases are the first RSS feed to be provided to stakeholders.

The RSS Reader regularly checks for new content from OSHA’s Web site and provides the user with a headline that links to the new posting and a short description. To receive OSHA’s RSS feeds, users can download an RSS Reader or use a Web-based RSS Reader. More information on the use of RSS Feeds is available at www.osha.gov/rss/index.html.

People & Companies in the News
The newest ClarkWestern Design location in Portland, Maine, is the third location of its kind in the United States. The new office will be strategically located in Southern Maine to offer local engineering services for the New York and New England areas. The addition of the New England team brings a regionally experienced staff in the commercial building industry to the organization.

Fabcon, Savage, Minn., has promoted Andrew Krichbaum to regional vice president of its Ohio manufacturing facility, where he will oversee operations.

Krichbaum has served as a project manager at Fabcon for a year and a half, overseeing construction projects in the Ohio region.

Archbold, Ohio’s Fypon has received a 2007 Building Products Top 100 Product Award for its PVC Column Wraps. The award means the Fypon product was one of the top 100 lead-generating products in 2007.

JLG Industries, Inc., an Oshkosh Corporation company located in McConnellsburg, Pa., announces several key promotions: Tim Morris, Wayne Lawson and Andrew Satterley will each expand their responsibilities with JLG. Also, Frank Cholewicki has been named to the position of vice president – Americas finance.

Morris has been promoted to the position of vice president, market development and sales for the Americas. In this new position, his role is expanded to include all of North and South America. His responsibilities include the development and implementation of JLG’s strategic business plan for the Americas and further development of the integrated Americas team. Tim has been with JLG for 15 years, during which time he has held leadership positions with increasing responsibility.

Lawson, vice president, sales and customer support for EAME, has assumed overall responsibility for the development and implementation of JLG’s market development and sales strategies in the Europe, Africa and Middle Eastern markets. In addition to his responsibilities of providing leadership and direction for JLG’s European sales and service operations, he will also assume responsibility for the European aftermarket parts sales business segment. Since joining JLG in 2001, Wayne has been instrumental in the continued growth and development of JLG’s European business.

Satterley has been promoted to managing director for Australia and New Zealand. He will continue to lead the market development, sales and service business in Australia and New Zealand. His additional responsibilities include the continual assessment of markets, and the development and implementation of strategic business plans. Andrew joined JLG in April 2007 and has 24 years of experience in the lift industry.

Cholewicki is now responsible for finance practices and fiscal reporting for the Americas. He also has global financial responsibility for the Caterpillar Alliance Group and government business.

Lafarge, Herndon, Va., announces that it has begun construction on a new state-of-the-art joint compound production manufacturing facility adjacent to its Silver Grove, Ky., gypsum wallboard plant.

The fully automated production line will produce a complete range of Lafarge’s ready-mixed joint compound product offering.

Construction has begun at the facility and the first product is expected to ship by January 2009.