Fatality #27

MSHA is reporting fatality #27 in metal/nonmetal sector. On October 22, 2007, a 22-year-old car man with 1-1/2 years experience was injured at a granite operation. He was walking across the rail yard to uncouple several loaded rail cars when he was struck by a yard locomotive. The victim was hospitalized and died on October 24, 2007. Your comment?

PCA warns of recession

Despite recent Federal Reserve actions, the sub-prime crisis will adversely impact investment and public spending through 2010, leading the Portland Cement Association (PCA) to again adjust its cement consumption forecast. At his presentation at the PCA Board Meeting last week, chief economist Ed Sullivan announced that PCA now expects 2007 cement consumption to decline 6.9 percent, followed by a 2.5 percent decline in 2008.

Sullivan believes that as the economy weakens due in large part to the sub-prime crisis coupled with increased energy costs, overall nonresidential construction will experience declines, negatively affecting cement consumption. The housing market, according to the PCA forecast, is not expected to rebound until mid-2009.

"Our forecast anticipates the impact of a significant economic growth slowdown on the construction industry, but does not predict a recession," said Sullivan. "A recession scenario is a much grimmer picture." PCA believes the possibility of a recession materializing in the next six months is 40 percent. It expects the Federal Reserve to reduce the interest rate 75 basis points during the next three quarters. However, if the impact of the sub-prime crisis is worse than expected and energy costs hit consumers harder, a recession is possible. Your comment?

"If a recession occurs, construction spending will decline nearly 13 percent, causing a 10 percent decline in 2008 cement consumption and decreasing kiln utilization rates to 85 percent," said Sullivan. "An additional 3.8 consumption decline would occur in 2009, followed by growth in 2010."

2008 Construction Outlook

McGraw-Hill Construction, part of The McGraw-Hill Companies, has released its 2008 Construction Outlook, which forecasts a drop in overall U.S. construction spending for next year, fueled by tighter lending conditions and weaker job growth. Against this backdrop, the level of construction starts is expected to decline 2 percent, to $614 billion, following an 8 percent decline predicted for 2007. “The credit crunch that emerged at mid-2007 continues to be a major concern for construction and the overall economy,” said Robert A. Murray, Vice President, Economic Affairs, McGraw-Hill Construction.  “As a result, we’re now predicting downturns in the previously resilient multifamily and commercial segments, as well as continued weakness in single-family home construction.”
 
There are some positives for the market in 2008, Mr. Murray noted. Transportation projects should continue to see moderate growth amid a renewed emphasis on infrastructure maintenance and upgrades, particularly in the aftermath of the I-35W bridge collapse in Minneapolis. Financing from public sources will stay generally supportive, and the growth of public-private partnerships also offers the potential for greater funding. Finally, growth in “green” construction practices means that the demand for sustainable building design and materials will continue to rise.
 
Highlights of the 2008 Construction Outlook include:
* Single-family housing will weaken further, given the large inventory of unsold homes and diminished loan availability to homebuyers.  A 3percent drop in dollar volume is expected, corresponding to another 6 percent decline in the number of units.
* Multifamily housing will slide 8 percent in dollars and 11 percent in units, following steeper declines in 2007. 
* Condominium development is being dampened by greater scrutiny from lenders as well as reduced homebuyer demand.
* Commercial buildings will slip 6 percent in dollar volume and 11 percent in square feet.  Tighter lending standards and the slower absorption of space will contribute to a measured downturn for stores, warehouses, offices, and hotels.
* Institutional buildings will rise 4 percent in dollar volume, while square footage edges up 1 percent.  School construction is expected to strengthen again after its 2007 pause, and transportation terminals are also expected to grow.  The other institutional structure types, including healthcare facilities, will see a modest loss of momentum.
* Manufacturing buildings will retreat 11 percent in dollar volume, after a 40 percent surge in 2007 that featured the start of several unusually costly projects plus a large number of ethanol plants.  Square footage for manufacturing buildings in 2008 is expected to advance 5 percent.
* Public works construction will move up 3 percent, following the 5 percent gain in 2007.  Highways and bridges are likely to receive greater funding when fiscal 2008 appropriations are approved.  The environmental project types should be up slightly next year, but site work connected to single family development will settle back.
* Electric utilities will see another modest decline in percentage terms, but essentially this project type is holding at the enhanced level achieved in 2006.  
Your comment?

Non-Residential goes West

While U.S. housing starts remain weak, both nationally and across all major geographic regions, the news is much more encouraging on the non-residential front, according to Reed Construction Data. The West is leading the country both in terms of non-residential buildings (+25.4 percent) and engineering/civil work (+41.4 percent). The Midwest (+22.5 percent) is in second place with respect to non-residential building starts, followed by the South (+18.3 percent) and the Northeast (+1.6 percent), with only the barest of increases. However, the Northeast (+33.0 percent) is in second place in the engineering category, with the South (+14.8 percent) trailing and the Midwest (-7.0 percent) in decline. Overall, the West has seen a +29.9 percent increase in non-residential starts (building plus civil work) so far this year versus January to September of last year. The South’s gain has been +17.3 percent; the Midwest has climbed +12.6 percent; and the Northeast is up +9.5 percent. In terms of actual dollars, the volume of non-residential starts in the South ($88.0 billion) through three quarters of this year is greater than in the West ($60.6 billion). Current dollar activity levels in the Midwest ($49.0 billion) and Northeast ($35.9 billion) are considerably lower. Your comment?

Materials costs predicted to rise again

The Associated General Contractors of America released its fifth Construction Inflation Alert, warning owners, budget setters and contractors to expect larger materials and labor cost increases in 2008 than they have experienced in the past 12 months. "Nonresidential construction has had a banner year so far in 2007 and we've seen spending on nearly every segment increase compared to 2006, despite the plunge in homebuilding," said AGC Chief Economist Kenneth Simonson. "The materials cost surges that plagued the industry in 2004-2006 have slowed dramatically, and labor remains available in most markets. Simonson warned that many observers expect that the end of the calm is coming soon, "The worsening slide in homebuilding and turmoil in the credit markets threaten some types of nonresidential construction. At the same time, some materials costs are beginning to turn up again, and labor costs have started to accelerate." Meanwhile, the nonresidential industry has benefited from greater availability of specialty trade workers who have lately shifted from residential work. Simonson added, "But wages have begun rising more steeply for specialty trade contractors, suggesting that the number of workers suitable to switch is close to exhaustion. In the next several months, the rate of wage increases is likely to reach 5-5.5 percent, up from a recent 4.5 percent gain." Your comment?

Fatality #25

According to MSHA, the metal/nonmetal sector suffered its 25th fatality of the year. On September 20, a 49-year-old laborer with 32 years of experience (2 days at the plant) was fatally injured at a sand and gravel operation. The victim went behind a guard, used a wooden handle shovel to clean under a conveyor belt take-up pulley, and was entangled in the pulley. Your comment?