U.S. Economy No Longer Deteriorating - At Least For Now
Overall, 2011 has been a year of disappointment. If the U.S. economy progresses, this will eventually translate into a more vigorous recovery in the nation’s nonresidential construction sector. But for now, the immediate outlook for nonresidential construction remains somewhat subdued.
During the first quarter of 2011, GDP expanded at a small rate of 0.4 percent, followed by 1.3 percent growth in the second quarter. But job growth looked unimpressive and far too weak to trim unemployment.
During the first six months of 2011, the nation added approximately 787,000 jobs, an increase of 0.6 percent. The construction industry added only 34,000 jobs during this period. The nation’s official unemployment rate has remained at 9.1 percent since July 2011.
Until recently, the nation seemed doomed for another downturn. But financial markets began to surge in October 2011, and consumers continued to spend at lofty levels despite extraordinarily weak income growth. Nonresidential fixed investment jumped 16.3 percent on an annualized basis during the third quarter of 2011 following a revised 9.2 percent increase during the previous quarter.
Nonresidential fixed investment in structures increased for the second straight quarter in 2011, up 13.3 percent following a 22.6 percent increase in the second quarter. Fixed investment in equipment and software expanded 17.4 percent in the third quarter following a 6.2 percent increase in the second quarter.
All of this is consistent with the notion that many U.S. businesses have decided to continue on with business. The ongoing expansion of the global economy has helped. The International Monetary Fund expects the world’s economy to expand 4 percent this year and grow similarly next year.
The situation in the U.S. looks somewhat unstable from a public-policy perspective, including state and local levels where many governments continue to wrestle with a host of fiscal challenges.
Construction Outlook Remains Fragile
Construction spending has leveled off in recent months. Total construction spending in August 2011 reached a seasonally adjusted annual rate of $799.1 billion, 1.4 percent higher than July’s level and 0.9 percent higher than in August 2010.
From the beginning of 2011 through August, construction spending amounted to $511.4 billion, or 3 percent below the $527.3 billion for the same period in 2010. Publicly financed construction grew 3.1 percent in August, while private spending grew 0.4 percent.
Much of the growth in recent years has emerged from publicly financed projects, including projects related to the U.S. stimulus package passed in February 2009. With the impact of stimulus-funded projects steadily declining, the U.S. nonresidential construction sector will become increasingly dependent on privately financed projects for growth. However, with job growth still slow, vacancy rates for various property types elevated and lending remaining disciplined, a boom in privately financed activity will most likely not happen in 2012.
That said, certain segments have more potential for growth than others. In recent months, construction related to the nation’s power industry has expanded more than 21 percent over a 12-month period. America’s resources appear to be in energy, and the growth of this economic segment has been particularly impactful in a number of states, including Texas, Oklahoma, North Dakota and Pennsylvania.
Healthcare represents another likely candidate for economic expansion due to thawing credit markets, the nation’s demographics and healthcare reform, which will continue to increase the number of Americans with insurance.
In many communities across the nation, industrial contractors can be characterized as busy or at least increasingly occupied, while commercial contractors generally struggle with overcapacity. For instance, while construction spending related to power has been surging, construction spending on lodging declined nearly 29 percent between August 2010 and August 2011. Construction spending on office buildings declined 2.3 percent during this same period.
Tight state and local government budgets will also have an impact. Several key categories closely linked to state and local government spending have experienced a decline in 2011
