Hope for 2009 resides in public projects

February 16, 2009
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More than half of the members of the Associated Builders and Contractors Inc.'s West Michigan chapter think work is going to decrease in 2009, according to the organization's leader.

The new year promises pitfalls for commercial construction in West Michigan, said ABC President & CEO John Doherty. Profits for his members, local builders and subcontractors are expected to be slim to none. Layoffs could loom and available work is expected to fall.

He said the ABC chapter's survey showed that members expect a 10 percent to 20 percent decrease in business for 2009.

"That's kind of our worst nightmare. … We don't want to follow the lead the home industry did, and go way down," Doherty said.

Some 57 percent of those responding said they expect business to decrease in 2009. A year ago, just 13 percent said the same for 2008.

"We're coming off some pretty good years, in the last few years, with projects downtown and in the suburbs," Doherty said. "But a lot of continuing work in those kinds of projects is not going to happen."

The projects along Michigan Street's "Medical Mile" are about half done, he said, but additional big health care projects are uncertain. What is certain is that in 2010, and certainly by 2011, "those cranes and that craziness on the hill will just be a memory," Doherty said.

Tight credit markets are discouraging financing for commercial projects, Doherty said. Banks are shying away from big new developments, he said. 

Funding for projects that rely on tax money, such as public schools and colleges, is not a sure thing.

"You're not going to see as many school districts pass bond issues in this environment," Doherty added.

The nonprofit, government and education sectors have helped buoy construction locally, but 2009 may be the year of reckoning for them, as well, Doherty said. Projects already in the funding stream may move forward, but schools and colleges that rely on fundraising and government support for building projects may be forced to postpone them because of budget and fundraising problems during the deep recession, he said.

Doherty said he sees some glimmer of hope in President Barack Obama's plans for a public works economic stimulus package, or a similar push from the state.

"Absolutely, we're looking at that … and whether that will be a permanent push or a temporary spurt," Doherty said.

He predicted more layoffs in an industry that saw employment drop by nearly 5 percent in West Michigan from the first half of 2007 to the first half of 2008. Statewide, the drop was 8.4 percent over the same time period.

Materials costs, which often are borne by subcontractors during the construction process, went up 10.3 percent in the year ending in November.

Doherty also predicted more emphasis on technology, collaboration and the economies of green construction.

Outside of the Medical Mile, major projects spilling over into 2009 include the Gerald R. Ford International Airport parking ramp, Spectrum Health's renovation and expansion of Blodgett Hospital and the Kent County Health and Human Services building.

"The data regarding private nonresidential construction activity will continue to deteriorate as fewer deals are brokered and as construction starts remain subdued," noted Anirban Basu, chief economist for the national ABC.

"Even as the data deteriorate, the seeds of a construction recovery are being sown in the form of falling construction materials prices and interest rates. Given these factors, as well as ongoing efforts to stimulate the economy, it may be that a weak 2009 will be followed by periods of considerably more robust construction activity."

National trends are expected to mirror local expectations of a 10 percent to 20 percent decline, according to the ABC.

That will be led by a 25 to 35 percent drop in construction for manufacturing, which had been strong in the past several years. Office construction is anticipated to be down by 15 to 25 percent, thanks in part to contraction in the financial services industry. Alternative energy construction is expected to see a bump up as the Obama Administration's plans come into focus.

"One of the most telling signs that we will see a downturn in commercial and industrial construction activity is the dramatic fall of the Architecture Billings Index, produced by the American Institute of Architects," Basu said. "In October, the ABI rating reached an historic low not seen since the rating system was established in 1995. 

"While nonresidential construction employment was down 4.7 percent on a year-over-year basis in October, this level of job loss pales in comparison to what is likely to emerge over the next 12 months," he added. 

"ABC expects that the reversal in industry fortunes will be increasingly manifested in the 2009 and 2010 data. It is worth noting that producer prices also will begin to decline more forcefully in the months ahead due to the deflation in key commodities, including copper, steel and oil. However, this will help accelerate the sector's eventual recovery." 


Associated Builders and Contractors 2009 West Michigan Forecast Survey
Proportion of Respondents:


Increase
Decrease
Stay Same

Business Activity
9%
57%
34%

  Profits 
7%
61%
32%

  Bid Prices 
19%
30%
52%

Source: Associated Builders and Contractors, West Michigan Chapter

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