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Recovery eludes construction sector, cement groups point to shaky markets

By Brian Johnson
Dolan Media Newswires

Minneapolis — The construction economy throughout the nation is showing more discouraging signs.

Architecture billings are still slow, according to the latest numbers from the American Institute of Architects, and cement industry officials say their industry is years away from significant recovery.

This week, the AIA announced that its latest Architecture Billings Index, a gauge of future construction activity, shows a continued decline in demand for design services.

The July index of 47.9 was up slightly from the previous months 46.0 level, but still indicates a market on shaky ground. Readings under 50 show a decrease in architecture billings.

“Business conditions at design firms remain quite volatile,” according to a statement attributed to AIA chief economist Kermit Baker. “While this recent uptick is encouraging, this state of the industry is likely to persist for a while as we continue to receive a mixed bag of feedback on the condition of the design market from improving to flat to being paralyzed by uncertainty.”

Still, there’s some slight optimism in western Wisconsin and Minnesota.

“I would not say there is any huge recovery now. … Certainly, clients are cutting back and they are being very frugal with their money and the lending economy is poor,” said Bob Shaffer, president of Minneapolis-based Foundation Architects.

“But we still have clients who are doing work and we have some clients who are expanding, even. And some of our work is even from people who are shrinking. Not that that is a great thing, but we have done some work where we have remodeled people’s facilities to be smaller so they can lease out part of their space or something.”

There’s roughly a nine- to 12-month lag between architecture billings and construction spending, according to the AIA. The monthly index is based on a nationwide survey of AIA-member architectural firms.

Meanwhile, the Skokie, Ill.-based Portland Cement Association predicts cement production won’t make a significant comeback until 2013 because of delays in passing a new federal highway bill.

A proposed six-year highway bill that would significantly increase transportation spending has been stuck in Congress, and no movement is expected on the bill anytime soon.

“The turning point for cement consumption will most likely occur in 2013,” according to a statement attributed to Edward Sullivan, the PCA’s chief economist. “Then we will have a new highway bill in fiscal 2013, supplemented by the recovery in state fiscal conditions. At the same time, nonresidential and residential building should be on a solid upswing.”

PCA officials predict an 18.8 percent increase in highway and street cement construction in 2013, preceded by smaller increases in 2012 (8.4 percent) and 2011 (6.7 percent).

The PCA foresees a 2.4 percent increase in consumption in 2010, as federal stimulus spending shifts toward more cement-intensive work, such as road widening and bridges.

But the modest increase in 2010 comes with a caveat: It’s based on a comparison with 2009, when the market was in a severe downturn.

Doug Burns, executive director of the PCA’s North Central region — which covers Minnesota, Iowa, Nebraska and North and South Dakota — said the situation in Minnesota mirrors the national outlook.

“We had a good infusion of stimulus funds, which supported infrastructure construction,” he said. “Those expenditures were not enough to offset the decline in residential construction and all the other impacts of the economy on construction. But at least we did have that investment, which did help cement consumption.

“In 2011 and 2012, those funds are not available. Coupled with the fact we do not have reauthorization of federal transportation bill,” that will “dramatically affect, in a negative way, the DOT construction budget and infrastructure construction in the state.”

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