Construction Trends

June 2009

March Construction Improves 5 Percent

New construction starts increased 5 percent in March to a seasonally adjusted annual rate of $393.2 billion, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. The improved level of contracting relative to February was due to a strong increase for public works construction. At the same time, nonresidential building showed a further loss of momentum, and residential building slipped back after its brief upturn in February.

The March data produced a reading of 83 for the Dodge Index (2000=100), up from 80 in February. The level of contracting as depicted by the Dodge Index has trended downward from the start of 2007 through early 2009, with the rate of descent becoming particularly steep from mid-2008 through February.

"The pickup for public works in March is in line with what’s anticipated for 2009 as a whole, that being public works will help to cushion the weakness that’s still expected for overall construction activity,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "The public works sector in March was supported by several large projects, and in a few months the upward push will become more broad-based as funding from the federal stimulus package begins to have an impact at the construction site, especially as it relates to transportation public works. The prospects for nonresidential building in 2009 are less hopeful, given the persistently tight lending environment and further erosion on the employment front. As for housing, while the declines are likely to be less severe as 2009 proceeds, to this point the housing sector is still in the process of reaching bottom.”

Nonresidential building, at $153.8 billion (annual rate), retreated 3 percent in March. The commercial sector included a 48 percent plunge for office construction, which had been lifted in February by the start of a $922 million headquarters for the U.S. Army in Alexandria, Va. Although not as large as February’s entry, March also included a large government office project—$260 million related to renovation work at the Pentagon in Arlington, Va.

Murray noted, "While 2009 is shaping up as a tough year for private sector office construction, government-related office projects are seeing relatively strong activity, which should be enhanced over the coming year given the stimulus funding directed at energy-efficiency upgrades to federal buildings.”

Warehouse construction in March was also down sharply, falling 24 percent. Both stores and hotels witnessed gains in March, up 9 percent and 27 percent respectively, but this was relative to very weak activity in February. In similar fashion, manufacturing plant construction improved 36 percent in March compared to a weak February.

On the institutional side of the nonresidential market, school construction in March increased 3 percent, helped a $237 million university building in Palo Alto, Calif., as well as a number of large high school construction projects in Texas, Washington, Missouri and New York. The public buildings category grew 29 percent in March with the help of such projects as a $99 million Special Forces complex at Eglin Air Force Base in Florida and a $56 million federal courthouse in Jefferson City, Mo. Transportation terminal work in March jumped 227 percent, lifted by the start of a $250 million terminal renovation project at San Francisco International Airport. Amusement-related construction also posted a strong gain in March, rising 37 percent, but this was compared to a very weak February. Showing a loss of momentum in March were healthcare facilities, down 4 percent as this category’s retreat from a record 2008 continues; and churches, down 26 percent.

Residential building in March dropped 8 percent to $96.0 billion (annual rate), with decreased activity for both sides of the housing market. Single-family housing in March fell 7 percent, slipping back after its brief upturn in February. Since the start of 2006, single-family housing has seen dollar volume declines in 33 out of 39 months.

The regional pattern for single-family housing showed reductions in all five regions: the West, down 2 percent; the Northeast, down 4 percent; the South Central, down 7 percent; the South Atlantic, down 8 percent; and the Midwest, down 11 percent. Multifamily housing dropped 14 percent, as this category continues to show a much smaller amount of large multifamily projects that are reaching groundbreaking compared to two years ago. In March, the largest multifamily project reported as a construction start was a $60 million retirement community in Fort Worth, Texas.

On an unadjusted basis, total construction during the January–March period of 2009 was reported at $83.2 billion, down 40 percent from the same period a year ago. By major sector, large declines were registered by nonresidential building, down 47 percent; and residential building, down 52 percent; while a more moderate shortfall was shown by nonbuilding construction, down 11 percent. The nonresidential sector during the first three months of 2008 had been lifted by the start of five exceptionally large projects—the $7.0 billion Motiva refinery expansion in Port Arthur, Texas, three towers at the World Trade Center site in lower Manhattan with a combined construction start cost of $3.9 billion, and the $1.1 billion Revel Resort and Casino in Atlantic City, N.J. If these five large projects are excluded from the January–March 2008 statistics, nonresidential building for the first three months of 2009 would be down 35 percent from a year ago, and total construction would also be down 35 percent. For the five major regions, total construction during the first three months of 2009 showed this pattern: the Midwest, down 25 percent; the West, down 37 percent; the South Central, down 39 percent; the South Atlantic, down 42 percent; and the Northeast, down 56 percent.

Additional perspective is obtained by looking at 12-month moving totals, in this case the 12 months ending March 2009 compared to the 12 months ending March 2008. On this basis, total construction is down 21 percent, as the result of this pattern by sector: nonresidential building, down 14 percent; residential building, down 41 percent; and nonbuilding construction, up 4 percent. By region, the 12 months ending March 2009 showed the following performance for total construction compared to the previous 12 months: the Midwest, down 6 percent; the South Central, down 12 percent; the Northeast, down 19 percent; the West, down 28 percent; and the South Atlantic, down 31 percent.

Home Builder Data Suggest Market at or Near Bottom
Builder confidence in the market for newly built, single-family homes rose five points in April to the highest level since October 2008, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index, released April 15. This gain was the largest one-month increase recorded since May of 2003, and brings the HMI out of single-digit territory for the first time in six months—to 14. Every component of the HMI reflected the boost, with the biggest gain recorded for sales expectations in the next six months.

"If you’re a potential buyer who’s been sitting on the fence waiting for a sign that now is the time to act, this is it,” said NAHB Chairman Joe Robson, a home builder from Tulsa, Okla. "Some of the most favorable buying conditions in a lifetime are now in place, and they are drawing more consumers back to the market.”

"This is a very encouraging sign that we are at or near the bottom of the current housing depression,” said NAHB Chief Economist David Crowe. "With the prime home buying season now under way, builders report that more buyers are responding to the pull of much-improved affordability measures, including low home prices, extremely favorable mortgage rates and the introduction of the $8,000 first-time home buyer tax credit.”

Crowe cautioned, however, that a key issue that still must be addressed is the ongoing lockdown on builder acquisition, development and construction financing. "Restoring health to our nation’s economy will require a substantial housing recovery, and that recovery is contingent on breaking the logjam in AD&C lending that presents an ever-increasing obstacle for home builders,” he said.

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 in the next six months as "good,” "fair” or "poor.” The survey also asks builders to rate traffic of prospective buyers as "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 conditions as good than poor.

Each of the HMI’s component indexes recorded substantial gains in April. The largest of these gains was a 10-point surge in the component gauging builder sales expectations for the next six months, which brought that index to 25. The component gauging current sales conditions and the component gauging traffic of prospective buyers each rose five points, to 13 and 14, respectively.

The HMI also rose in every region in April, with an eight-point gain to 16 in the Northeast, a six-point gain to 14 in the Midwest, a five-point gain to 17 in the South and a 4-point gain to 9 in the West.

New Construction Confidence Index Shows Firms Are Wary of Slow Recovery
Engineering News-Record and McGraw-Hill Construction Research & Analytics have introduced a new quarterly Construction Confidence Index to measure industry sentiment about the construction market, including market sectors, expectations and trends. The Construction Confidence Index is 25 on a scale of 100, where a value of 100 indicates all respondents report "improving” activity and a value of 50 means all respondents report "stable” activity.

When assessing the construction market, 86 percent of survey responders, including general contractors, subcontractors and designers, see it currently declining, and most believe the market turnaround is at least 12 to 18 months away. Employment figures are also grim: 62.3 percent of firms reported they have laid off people in the past six months, with one in 10 saying that more than 20 percent of all staff had been cut; 35 percent expect further cutbacks. Not surprisingly, the stimulus bill elicited more positive responses, with 61 percent agreeing that the bill will have a positive impact on the industry.

"By surveying leaders at the top companies in the industry, we are able to get a better pulse on market conditions,” said Janice L. Tuchman, editor-in-chief of Engineering News-Record. "Their opinions and viewpoints are strong indicators for where the market stands and where it is headed. ENR’s Construction Confidence Index is certain to serve as a powerful industry assessment tool, especially in the challenging times that lie ahead.”

The next quarterly survey will be available next month.

New-Homes Inventory Continues Shrinking in March
The number of newly built, single-family homes on the market declined for a 23rd consecutive month in March as builders focused on winnowing down their inventories of unsold units, according to new-home sales data reported by the U.S. Commerce Department April 24. Inventory shrank to 311,000 units, which is a 10.7-month supply at the current sales pace.

"Builders are doing a great job of thinning the supply of unsold homes and positioning themselves for a slow but steady housing recovery,” noted NAHB Chairman Joe Robson, a home builder from Tulsa, Okla. "Today’s numbers are a welcome sign that the market is stabilizing as some of the best home buying conditions in a lifetime are drawing consumers off the fence and back into the market.”

The latest government data indicated that new-home sales in March remained virtually on pace with a relatively strong, upwardly revised number from the previous month. Sales were reported at a seasonally adjusted, annual rate of 356,000 units, which was off just 0.6 percent from February.

"In line with NAHB’s forecasts, we continue to see evidence that the new-home sales market is bottoming out as historically low mortgage rates, attractive home prices and incentives like the newly created $8,000 first-time home buyer tax credit spur more interest among consumers,” said NAHB Chief Economist David Crowe. "That’s particularly true in the West, where a 15 percent gain in March can be attributed in part to California’s implementation of an up-to-$10,000 tax credit for buyers of newly built homes—which, when combined with the federal first-time buyer credit, creates a sizeable inducement to purchase.”

Regionally, new-home sales activity was somewhat mixed in March, with the two largest markets posting the best results. The West registered a 15.1 percent gain, while the South held even with the previous month’s improved sales pace, the Midwest posted a 7.8 percent decline and the Northeast posted a 32 percent decline.

Single-Family Housing Starts Unchanged in March
Characteristic volatility in the multifamily sector pushed nationwide housing starts down 10.8 percent in March as production of single-family homes remained unchanged, according to numbers released April 16 by the U.S. Commerce Department. Overall starts fell to a seasonally adjusted annual rate of 510,000 units, due entirely to a 29 percent reduction on the multifamily side that largely offset a big gain in apartment and condo building in the previous month.

"While improving interest among potential home buyers has builders more optimistic these days, we don’t want to ramp up production until sales of new homes pick up,” noted NAHB Chairman Joe Robson. "A cautious attitude about new building is definitely what’s called for here, and that’s what most builders have wisely adopted for the time being.”

"Today’s numbers are right on target with NAHB’s forecast, which anticipates that housing starts will bottom out in the second quarter, after new-home sales have stabilized,” said NAHB Chief Economist David Crowe. "Single-family starts remained virtually unchanged over the past three months, indicating that we are closing in on a bottom. Multifamily starts, which tend to bounce around from month to month, were responsible for the decline in total starts as they readjusted following a substantial gain in February.”

Crowe noted that while builders have been seeing more sales office traffic and fielding more calls in recent weeks as consumers respond to historically affordable home buying conditions, many continue to grapple with a severe credit crunch for acquisition, development and construction financing. "A substantial recovery in housing of the kind that’s required to help get the national economy back on its feet will not happen until the logjam in AD&C lending has been broken,” he cautioned.

While total housing starts declined 10.8 percent to a seasonally adjusted annual rate of 510,000 units in March, single-family housing starts remained exactly on par with the previous month, at a 358,000-unit rate. Multifamily starts declined 29 percent in the month to a 152,000-unit rate, erasing a large portion of the gain posted by that sector in the previous month.

Housing starts were down in three out of four regions in March. The only region posting a gain was the Midwest, which was up nearly 16 percent. Meanwhile, the Northeast posted a 25.4 percent decline, the South a 16.8 percent decline and the West a 26.3 percent decline.

Building permits, which can be an indicator of future building activity, also fell in March. Total permit issuance declined 9 percent to a seasonally adjusted annual rate of 513,000 units, with single-family permits down 7.4 percent to 361,000 units and multifamily permits down 12.6 percent to 152,000 units.

Permit issuance declined across every region except the West in March. While that region posted no change from February, the Northeast posted a 24.3 percent decline, the Midwest a 2.3 percent decline and the South a 10.3 percent decline.

ABC Applauds Bill to Expand Green Job Training Program to Merit Shop Workers
Associated Builders and Contractors, Washington, D.C., voiced its strong support for the Green Jobs Improvement Act of 2009, introduced April 22 in the U.S. House of Representatives by Rep. John Kline (R-Minn.). The legislation would expand a provision in the Energy Independence and Security Act of 2007 (H.R. 6) to allow merit shop training programs to receive federal funding to help create a skilled workforce whose focus is on energy efficiency and renewable energy.

"Both union and nonunion contractors support the concept of ‘green jobs’ training as they strive to meet the growing demand in the commercial and industrial construction industry,” said ABC President and CEO Kirk Pickerel.

The provision in the Energy Independence and Security Act of 2007, as it is currently written, limits grant funding for training to entities that "partner with labor organizations.” The Green Jobs Improvement Act eliminates the mandate so that labor organizations, as well as merit shop training programs, qualify for the federal funding.

World Demand for Insulation to Reach 21.5 Billion Square Meters in 2012
Worldwide consumption of thermal and acoustical insulation materials is projected to expand 3.8 percent per year through 2012 to 21.5 billion square meters of R-1 value. In dollar terms, demand for insulation materials will expand to $37 billion, primarily reflecting gains in volume, coupled with moderating increases in unit prices. These and other trends are presented in World Insulation, a new study from The Freedonia Group, Inc., a Cleveland-based industry research firm.

The most rapid rates of growth will be posted in the developing countries of Asia, boosted by strong building construction activity and increasing production of products that incorporate insulation materials, such as refrigerators and freezers. In particular, building construction spending continues to expand rapidly in China, sparking very strong annual growth in the value of insulation demand through 2012. Demand for insulation in China will also benefit from government initiatives to encourage more energy-efficient building construction.

Slowing residential construction in Western Europe, Canada and Mexico will limit insulation gains in new construction. However, a rebound in residential construction activity in the United States from a weak 2007 base will help to offset slowing growth in North America. In Western Europe, insulation demand will decelerate from the 2002–2007 period, reflecting slowing new construction activity, moderated in part by European Union directives on energy conservation to reduce carbon emissions, which will benefit retrofit building applications. The insulation market in Japan is expected to reverse the downward trend (in terms of thermal insulating value) that has characterized the 1997–2007 period. An expanding Japanese economy will support increased demand for insulation in construction markets.

Foamed plastic insulation will continue to account for the largest portion of total demand in dollar terms through 2012. Economic expansion in the developing countries of Asia will raise demand for foamed plastic insulation in both building construction and in the production of household appliances. However, moderation in plastics raw materials costs will hold down overall gains. Fiberglass insulation will expand its presence outside North America and will increase its overall market share. Mineral wool will see its share of the market shrink, primarily due to competition from fiberglass. Other materials will continue to be niche products, finding use on the basis of their low cost or environmental advantages.

U.S. Demand for Wall Coverings to Reach $2.4 Billion in 2013
Demand for wall coverings is projected to advance 4.2 percent annually from a weak 2008 base to $2.4 billion in 2013. This represents a considerable improvement over the performance from 2003 to 2008, as the collapse of new housing construction in 2007 and 2008 seriously reduced demand for wallcoverings used in new residential markets. In addition, the long-term decline in manufactured housing shipments drove down demand for finished gypsum board, while competition from paint limited the consumption of wallpaper. Going forward, however, the basic demand fundamentals for wall coverings will be much improved. Demand for wallpaper, which has suffered mightily over the last ten years, will finally begin to show positive growth once again. These and other trends are presented in Wall Coverings, another new study from The Freedonia Group, Inc., a Cleveland-based industry research firm.

Demand for wall panels is forecast to advance 4.0 percent per year to $920 million in 2013. Gains will benefit from growth in new home building, a rebound in manufactured housing and new product development in laminated wall panels. In nonresidential markets, demand for wall paneling will post less robust gains, mostly due to slow advances in new nonresidential markets.

Demand for decorative wall tile is projected to increase 5.0 percent annually to $920 million in 2013. Consumption of these products will benefit primarily from the recovery of the new housing segment, which will spur construction of more kitchen and bathroom space, the primary places for wall covering use.

Consumption of wallpaper is projected to expand 2.7 percent annually to $440 million in 2013. This reflects a long-awaited recovery in an industry segment that had recorded steady declines over the last ten years, due to cost, difficulty of use and changing style trends. The development of new products, such as removable wallpaper, wallpaper cut-outs, customized wallpaper, low-emission and mold-resistant products, will make wallpaper more consumer friendly and easier to use.

Finished gypsum board demand is projected to increase 4.2 percent annually to $80 million in 2013. These products are almost entirely dependent on the manufactured housing industry. Consequently, when manufactured housing production declined precipitously in the 1998–2008 period, demand for prefinished gypsum board panels suffered. Conversely, as manufactured housing finally recovers, gypsum board demand will also post gains.

Wall Coverings (published 05/2009, 269 pages) is available for $4,600 from The Freedonia Group, Inc., 767 Beta Dr., Cleveland, OH 44143-2326. For further details, contact Corinne Gangloff at (440) 684.9600, or e-mail pr@freedoniagroup.com. Information may also be obtained through www.freedoniagroup.com.

MiTek Acquires SidePlate Systems Inc.
MiTek Inc., Chesterfield, Mo., announced May 6, 2009, the acquisition, through its subsidiary MiTek Holdings Inc., of SidePlate Systems Inc., an innovator of proprietary high-performance steel frame connection technologies used in a range of construction applications. MiTek is a subsidiary of Warren Buffett’s Berkshire Hathaway Inc.

All SidePlate associates will remain with the company, and Henry Gallart will continue to serve as president, along with Jared Adams remaining as senior vice president. SidePlate will operate as a separate company.

Developed in direct response to the devastation caused by the 1994 Northridge earthquake, SidePlate’s technologies are ingeniously designed to protect structures against natural and manmade disasters, including earthquakes, blast attacks and progressive collapse. SidePlate’s solutions are backed by full-scale laboratory testing for earthquake applications, as well as unprecedented testing for blast and progressive collapse.

SidePlate Systems Inc. is based in Laguna Hills, Calif.

Sto Corp. Achieves ISO 14001:2004 Certification
Sto Corp. has been awarded the ISO 14001:2004 Environmental Management System certification for all North American Sto Corp. locations. The certification was granted by SGS, the world’s largest control and inspection company.

The ISO 14001:2004 international standard provides both a model for streamlining environmental management and guidelines to ensure environmental issues are considered within decision making practices.

Sto Corp. attained the ISO 14001:2004 Environmental Management System accreditation after a series of audits at its manufacturing facilities in North America as well as the corporate headquarters in Atlanta. Locations will be assessed annually to ensure continual development of the Environmental Management System (EMS) currently in place.

Since the implementation of the EMS system, Sto Corp. has achieved a huge reduction in materials sent to landfill through company-wide recycling programs including paper and cardboard recycling. Other areas of improvement include reduction of electricity use in all facilities; waste water reduction and recycling in its manufacturing processes; and a program for airborne particulate capture and exposure reduction. These efforts help Sto minimize its carbon footprint.

Initiatives for 2009 include continuation of the program aimed at reducing overall energy consumption, further increasing recycling frequency and type, and improving employee’s environmental awareness. These initiatives offer additional business benefits as well as an even greater reduction in environmental impact.

People & Companies in the News
Putzmeister America, Inc., Sturtevant, Wis., announces Southeast regional sales manager James Rogers as the recipient of the company’s 2008 RSM of the Year award for his highly commendable performance in 2008. Putzmeister America’s RSM of the Year award acknowledges an individual’s professional and personal qualities that have proven effective in serving customers to the highest level of sales support.

Employed by Putzmeister America since August 2006, Rogers handles concrete pump and Telebelt® sales within the company’s Southeast region. His territory includes Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina and Tennessee.

Merit Pro Finishing Tools, a drywall tool supplier headquartered in Spartanburg, S.C., and a subsidiary of The Merit Group, has changed its name to Merit Trade Source. The name change will be the first step in a rebranding of the company’s marketing vehicles including its catalog, website and marketing collateral.

Glasteel is celebrating its 50th year in the fiberglass reinforced panel industry.

Glasteel is a division of Stabilit, which started operations in 1959 in Mexico City manufacturing FRP panels. Glasteel was acquired from Alpha Corporation in 1997 and integrated to Stabilit’s business and international expansion.

Diamond Drywall of Southwest Florida, Inc. has been providing drywall, metal framing, stucco, exterior insulation and finish systems, acoustical ceiling, insulation and metal trusses to Florida developers and builders since 1988. Now Diamond Drywall has diversified into the glass and glazing field to assist in servicing Florida’s commercial customer needs.

The American Iron and Steel Institute’s Steel Market Development Institute has announced that Patrick R. Bush, industry manager, construction, sheet and strip converters, North American flat-rolled marketing at United States Steel Corporation (retired) is the recipient of the 2009 Market Development Lifetime Achievement Award. The award recognizes steel industry professionals who have made significant contributions over the course of their careers in advancing the competitive use of steel in the marketplace. These contributions include influencing strategic direction and increasing interest in market development by their colleagues.