Stimulus Serves as Bright Spot in Grim 2010 Construction Outlook

Stimulus Serves as Bright Spot in Grim 2010 Construction Outlook

Stimulus serves as bright spot in grim 2010 construction forecast from AGC

Nearly nine-in-ten contractors say there will be no recovery in 2010, based on a new national construction hiring and business outlook forecast released recently by the Associated General Contractors of America (AGC), Arlington, Va. As a result, fewer contractors plan to purchase construction equipment, and many doubt they'll be able to hire new staff this year, after a year of near-record industry layoffs.

According to Stephen E. Sandherr, CEO of AGC, construction spending declined last year by $137 billion, currently hitting its lowest level in six years. Although it makes up only 5% of the U.S. workforce, construction workers shouldered 20% of non-farm layoffs last year.

The construction outlook, which is based in part on survey responses from nearly 700 construction firms submitted in late December and early January, shows that privately funded construction activity is likely to decline even further this year. In fact, 64% of responding contractors expect demand for new manufacturing facilities to decline, while 71% expect demand for new retail, warehouse, and lodging facilities to drop. As a result, the number of firms expecting to buy new equipment is down to 46% this year from 61% in 2009. Meanwhile, 81% of firms report already having to cut profit margins in their bids just to stay competitive — and another 10% say they are now submitting bids so low they will actually lose money.

Many construction firms are uncertain they'll be able to add staff following a year of record layoffs. In 2009, 73% of firms said they laid off employees, averaging 39 layoffs per firm. For 2010, however, 60% indicated they are unsure whether or not they will be able to add new staff — or be forced to make further cuts.

One of the few bright spots in the survey was the federal stimulus money. A total of 31% of contractors say they were awarded stimulus-funded projects. Of these, 46% say the stimulus helped them retain an average of 24 employees each. Another 15% say the stimulus helped them to add an average of 10 new employees per company while 12% cite the stimulus as driving new equipment purchases.

According to Sandherr, stimulus is driving up expectations for publicly funded construction activity in 2010. For example, 62% of contractors expect the highway market to improve or remain stable, 61% say water and sewer construction will improve or remain stable, and 55% say work on public buildings will improve or remain stable in 2010.

“The stimulus is finally beginning to have a measurable, but limited, impact on the construction industry,” says Sandherr. “The full impact of those investments has sadly been tempered by the inability of Congress to put a host of multi-year infrastructure funding plans in place.”

In addition to stimulus-funded projects, contractors also remained relatively upbeat about prospects for power, hospital, and higher education construction — 52% expect demand for power facilities to be at or above last year's levels, while 57% expect growth or stability in demand for hospital and higher education construction.

Despite cause for optimism in these few areas, the outlook points to another difficult year for contractors. The only truly good news, notes Sanderr, is that construction costs remain at multi-year lows, providing good deals for anyone willing to begin a construction project.

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