Construction spending rebound coming--eventually

Total construction spending to drop 12.2% in 2009, 5.6% in 2010. Rebound expected in 2011 with double-digit growth returning in 2012 as struggling commercial sector comes back.

Source: IHS Global Insight Construction Service

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According to the IHS Global Insight Construction Service, total construction spending in the U.S. on an annual basis is forecast to fall 12.2% this year and 5.6% in 2010 before growing 7.6% in 2011 and achieving double-digit growth in 2012, according to the Fourth Quarter U.S. Construction Briefing by IHS Global Insight's Construction Service.

While the construction industry has been showing pockets of resurgence, particularly in the residential sector, nonresidential construction will continue declining for many quarters to come. Commercial construction, in particular, is forecast to post sharp year-on-year declines through 2010, overwhelming the developing strength in the residential sector and dragging annual total construction growth down into negative territory.

The broader U.S. economy, meanwhile, has moved back into the black and is showing positive GDP growth for the first time since the second quarter 2008. However, credit remains constrained, employers are still shedding jobs, though the pace slowed in November, and consumer and business confidence remain low--all issues which affect the construction industry.

Select key findings from the Fourth Quarter forecast include:

Commercial. The commercial sector is forecast to drop 30.3% in 2009 and 28.2% in 2010, and return to positive annual growth in the second quarter 2011. Commercial activity is heavily encumbered by unemployment, which means lower occupancy rates, despite falling rents. All five components of commercial construction - office, lodging, automotive, retail, and warehousing - will weaken in 2010. Office construction will continue to contract through the beginning of 2011 when vacant space is repopulated and employment growth gains momentum. Real construction spending on lodging is projected to fall 26.4% in 2009 and 33.9% in 2010 on an annual basis, the result of weak consumer spending and business investment.

Residential. The residential sector posted the first quarter-to-quarter increase since the beginning of 2006 and is forecast to grow 9.6% in 2010 on the strength of the single-family sector. The recent success in the single-family sector can be attributed to the first-time homebuyers' tax credit which mainly affected existing home sales, helped stabilize home prices and boosted housing starts earlier in the year. The single-family sector is on the mend and expected to grow 4.1% in the fourth quarter compared to a quarter ago, though, on an annual basis, spending levels will be 22.1% lower. In 2010, single-family construction spending is forecast to grow at a recovery pace of 32.6%. Multi-family construction will fall 30.5% in 2009 and 47.0% in 2010 because of low prices in the single-family sector and tight credit in the commercial market.