Big Government Projects Picking Up But U.S. Construction Market Remains Soft

While construction is still in the doldrums, some signs of recovery are starting to shine through the wreckage.

Robert Murray, vice president of economic affairs for McGraw-Hill Construction, New York, and author of his company’s annual construction forecast, said a lift in public works construction is in line with his 2009 forecast and that public works will help to cushion the weakness that he still expects for overall construction activity.

“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,” he said. “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.”

The McGraw-Hill report showed a three percent drop in nonresidential building in March to an annual rate of $153.8 billion, and a 48 percent decline over February in the office building sector. The report said February’s numbers had been helped out by the start of a $922 million headquarters for the U.S. Army in Alexandria, Va. The company’s March forecast included another large government project — $260 million in renovation work at the Pentagon.

“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,” said Murray. Other large projects now underway around the United States included a $237 million university building in Palo Alto, Calif., and a $250 million terminal renovation project at San Francisco International Airport.

The most recent statistics still paint a bleak picture for the current climate of the construction market. McGraw-Hill’s forecast currently shows a 40 percent drop for total construction in March from the same period a year ago and a 47 percent decline for nonresidential construction. However, the company’s report on March construction activity said the year-to-year declines compared to 2008 were not quite as bad as they looked on the surface because the numbers for early 2008 included the start of some “exceptionally large” construction projects — the $7 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, Murray said 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.

The U.S. Census Bureau statistics on the value of new construction in March reflected the same strengths and weaknesses as Murray’s construction forecast. That report said construction spending during March 2009 was estimated at a seasonally adjusted annual rate of $969.7 billion, 0.3 percent above the revised February estimate of $967.1 billion. The March figure is 11.1 percent below the March 2008 estimate of $1,090.5 billion. During the first three months of this year, construction spending amounted to $209.5 billion, 10.9 percent below the $235.2 billion for the same period in 2008.

Spending on private construction was at a seasonally adjusted annual rate of $661 billion, 0.1 percent below the revised February estimate of $661.6 billion. Residential construction was at a seasonally adjusted annual rate of $258.4 billion in March, 4.2 percent below the revised February estimate of $269.6 billion. Nonresidential construction was at a seasonally adjusted annual rate of $402.6 billion in March, 2.7 percent above the revised February estimate of $392 billion.

In March, the estimated seasonally adjusted annual rate of public construction spending was $308.7 billion, 1.1 percent above the revised February estimate of $305.4 billion. Educational construction was at a seasonally adjusted annual rate of $89.2 billion.