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Economist predicts rough ride for construction industry

Workers position a precast floor section during construction of the U.S. Bank parking structure in Milwaukee last February. The AIA predicts (Photo by Charles Auer)

Workers position a precast floor section during construction of the U.S. Bank parking structure in Milwaukee last February. The AIA is predicting a 20 percent decrease in construction spending this year versus 2009. (File Photo by Charles Auer)

By Tony Anderson
Special to The Daily Reporter

An industry group is forecasting at least one more year of decreased construction spending in a market already battered by a weak economy.

An American Institute of Architects economic forecast is predicting the decline. The report, written by Kermit Baker, AIA’s chief economist, anticipates a 20 percent decrease in construction spending in 2010 versus 2009. But Baker predicts spending will begin to increase by mid-2011.

He anticipates a 3 percent increase in construction spending in 2011, including a 5 percent increase in the commercial sector, a 4 percent increase in the institutional sector and a 2 percent decrease in manufacturing buildings.

That prediction comes despite indications the economy grew about 3 percent in the second quarter of 2010.

Baker said that because of projects in the pipeline before the recession, the construction industry was slower to suffer. Now that the economy appears to be getting better, the industry will be slower to move out of the recession.

“It tends to be the last into the recession and the last out,” Baker said, “particularly on the nonresidential side.”

That means contractors need to find ways to ride out a rough market for a little longer, said Steve Stone, president of Associated Builders and Contractors of Wisconsin Inc.

“I think leaner, smarter, faster might be a good way to look at the future,” he said. “If contractors haven’t taken time to lean out their businesses at this point, I think they’re going to be in real trouble.”

Leaner does not necessarily mean reducing the size of work forces, Stone said. It relates to reducing operational costs, eliminating unused equipment or updating inefficient older equipment. It also means talking with accountants, insurance providers and equipment suppliers to take advantage of efficiencies.

The difference between this recession and others, Stone said, is the breadth of the effect. Typically, contractors find geographic areas that have not been hit by recessions; this time, the effect has been far-reaching. With 13 percent declines last year and a 20 percent decline this year, he said, the road to recovery will be bumpy.

Kevin Hickman, director of business development for J.P. Cullen & Sons Inc., Janesville, said his company has survived by expanding its areas of expertise.

“The firms that I see that are fairly busy, and I count ourselves among that group,” he said, “are the firms that have been diversified enough over the years.”

When commercial work drops, Hickman said, Cullen benefits from institutional work. When referendums for public schools fail, Cullen relies on university projects.

Hickman and Stone said it is a little optimistic to predict construction spending will turn around in the next 12 months. Although he wants the forecast to be true, Hickman said, the company is taking a conservative approach by not anticipating increases through the end of next year.

“I am a little surprised that they are looking for an actual increase for next year,” Hickman said.

Based on the number of requests for design proposals he is seeing and discussions with architects, Hickman said, he is not expecting growth in construction work for 12 to 18 months.

An economist for ABC, who visited Wisconsin earlier this year, targeted 2012 for an increase in construction spending, Stone said.

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