2006 Building Market Looks Strong

After yet another year of surprising strength, the U.S. construction market appears to be poised for solid growth in 2006.

Despite fears of rising materials costs, housing bubbles and future oil costs, economists at the 2006 McGraw-Hill Construction Forecast, held Oct. 20 in Washington, D.C., are looking forward to a healthy construction market in 2006.

“I am reasonably positive about 2006, but I am a little more cautious about 2007,” said Bob Murray, vice president of economic affairs, McGraw-Hill Construction.

Kermit Baker, chief economist, American Institute of Architects (AIA), Washington, D.C., said the AIA Work-On-the-Boards report, which is based on a monthly survey of architects on their work billed and in backlog, last month registered its highest reading since 1998. Design billings show up two quarters later in construction.

“The region that has separated itself from the pack is the South,” said Baker. “Nationally, architectural firms that focus on commercial and industrial work are cautiously optimistic and expect 6.5 percent growth in 2006.”

A contributing factor fueling the overall optimism is the amount of work the Gulf Coast reconstruction will generate. Executives from several key construction-industry trade groups discussed the impact of the Gulf Coast storms in a panel discussion at the meeting. Norman Koonce, the AIA’s executive vice president and CEO, said AIA members are helping architects whose businesses were displaced by Hurricanes Katrina and Rita by donating computers, plotters, fax machines and several hundred thousand dollars.

Patrick Natale, executive director, American Society of Civil Engineers (ASCE), Reston, Va., called for more government spending on infrastructure to prevent future disasters. He said the New Orleans’ levees failed because of poor construction and maintenance.

“No one talks about infrastructure until the dam breaks or the levee fails,” he said. “The U.S. infrastructure is the envy of the world, but we are not maintaining it.”

Gregory Sizemore, executive vice president, Construction Users Roundtable, Cincinnati, said the Federal Emergency Management Agency (FEMA), the Army Corps of Engineers and other private and public reconstruction efforts will need tens of thousands of contractors and other workers. He said building owners, architects, engineers, contractors and others with an interest in the construction effort should work together to ensure that the reconstruction is done properly. Sizemore said the rebuilding will require “the biggest collaboration in the history of the construction industry.”

Although Hurricanes Katrina and Rita are responsible for the costliest natural disaster in U.S. history, McGraw-Hill’s Murray said as measured by the impact on the entire U.S. construction industry, the affect of the storms is smaller than expected. The 31 counties impacted by Katrina have an estimated 1.2 percent share of all U.S. construction starts.

Other long-term economic trends that will affect the U.S. economy in the future are the growth of the economies of China and India and the price of oil. David Wyss, chief economist, Standard and Poors, New York, said in 2004 China and India accounted for one-third of the world’s gross domestic product (GDP) and that China alone accounted for 25 percent of global GDP. He also said because China has invested $200 billion at 4.5 percent in U.S. treasury bonds, it will be a force to reckon with in U.S. financial markets for years to come.

Rising oil prices are not only squeezing construction companies at gas pumps and as an element in some construction products such as PVC pipe and asphalt. Oil also has a dramatic impact on the price of electricity and natural gas, said Victoria Chu Pao, president, Platts, New York. “You cannot triple the price of oil without seeing similar increases in the prices of natural gas and electricity. Energy risk management will play a real role in all of our lives.”