ABC in 2012 forecast: Construction growth slow but with ‘gradual progress’
Associated Builders and Contractors (ABC) on Nov. 17 released its 2012 economic forecast for the U.S. commercial and industrial construction industry. “ABC’s analysis of construction trends indicates 2012 will be a year of gradual progress as advances in private construction are partially offset by ongoing declines in publicly financed construction,” ABC Chief Economist Anirban Basu said in a written statement.
Basu predicts that nonresidential construction spending is expected to grow 2.4 percent in 2012, following the 2.4 percent decrease in 2011.
The pace of recovery in the the U.S. nonresidential construction industry will remain “soft” and 2012 is positioned to be a year of slow gain, Basu says, adding that the first half of 2012 may be “particularly challenging.” He says this is a reflection of the soft patch in economic activity experienced during much of the first half of 2011.
“ABC’s national Construction Backlog Indicator, which stood at 8.1 months for both the second and third quarters of 2011, is not expected to advance substantially and likely will remain in the vicinity of 8 months of backlog for much of 2012,” Basu said in the written statement. “However, backlog is one month higher from the same time last year. A backlog of less than 8 months is associated with construction spending declines, while a backlog exceeding 8 months is statistically associated with future construction spending increases. Today’s level of backlog is consistent with flat construction spending.
“Nonresidential building construction employment is expected to increase 0.4 percent in 2012 following lackluster 0.6 percent growth in 2011,” Basu continued. “Employers will continue to seek increased productivity among existing workers in order to boost weak industry margins.”
There may, however, be some relief for construction contractors with regard to materials prices. In 2011, Basu says, prices for construction inputs rose 7.5 percent. ABC expects 2012 materials prices will rise 4.7 percent, he says, but “despite a sluggish construction recovery, input prices are likely to remain elevated as global investors retain significant ownership in commodities and hedge against risks emerging from Europe, the United States, China and Brazil.”
The direction of the U.S. dollar will play a major role in determining construction input prices in 2012, but that direction “is far from obvious,” Basu said. “Although the nation continues to run a large trade deficit, which implies further deterioration in the value of the dollar over time, investors often race to dollar-denominated assets during times of global financial stress. We are in one of those times now, which could keep the dollar inflated in 2012. While this would create a more challenging environment for U.S. exporters, it would likely result in lower construction materials prices.”
Year-to-Date Performance: 2010 – 2011 and ABC’s 2012 Forecast