OUTLOOK ’10: US non-residential construction likely to lag

30 December 2009 19:00  [Source: ICIS news]

Non-residential construction should slide in 2010HOUSTON (ICIS news)--Much has been made over the US construction industry’s potential to stop its financial bleeding and nearly break even in 2010, but a look at the internal numbers is not as positive for the US chemical industry.

That results from the industry’s particularly close tie with non-residential construction includes a slump in infrastructure projects such as office buildings, hospitals and schools, among numerous others.

According to the American Chemistry Council (ACC), an average of about $200 (€140) is spent on chemicals and plastics for every $1,000 spent in non-residential construction. Moreover, overall non-residential spending usually is much larger than housing.

As a result, the non-residential sector’s relationship with the beleaguered US manufacturing sector should delay any recovery, and set the stage for more losses in 2010, according to numerous reports.

“The pickup in residential construction will be more than offset by the progressively faster decline in non-residential,” said Jim Haughey, chief economist with Reed Construction Data, a sister publication of ICIS news.

The extent of that projected decline, however, varies by source. The 2010 outlook by economic forecasting firm IHS Global Insight predicts a 4% overall construction drop, largely due to a 28% year-over-year decline in commercial construction and a 41.5% decline in manufacturing construction.

Within the commercial sector, the decline is forecast to be led by office buildings, hotels and retail stores - all predicted to fall further in 2010.

In manufacturing, the steep decline is largely due to “tremendous weakness” in fabricated metals, non-metallic minerals and transportation equipment, IHS said.

However, the ACC predicts only a 4% drop in commercial construction and a 14% manufacturing decline in 2010, based largely on stimulus-related help, it said.

The $787m US stimulus bill should raise construction spending for public healthcare, infrastructure and transportation in 2010, according to forecasts. However, even a rosier stimulus scenario - such as the one painted by the ACC - does not appear to show enough strength to bring the broader non-residential sector into positive territory.

“The increase is unlikely to offset continued shrinkage in private, state and local government-funded projects,” said Ken Simonson, chief economist with the Associated General Contractors of America (AGC). “Many contractors report dwindling backlogs and fierce competition for what work does appear.”

“Meanwhile, bank financing remains difficult, if not impossible, to obtain for developers,” he added.

The commercial sector is expected to return to annual quarterly growth in 2011, while manufacturing is likely to slip another 12% in 2011 before expanding in 2012, IHS said.

($1 = €0.70)

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By: Ben DuBose
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