Associated Builders and Contractors (ABC) has released its 2012 economic forecast for the U.S. commercial and industrial construction industry. No surprise here – the forecast looks slow. ABC Chief Economist Anirban Basu examines the situation:
"Nonresidential construction spending is expected to grow 2.4% in 2012 following a 2.4% decrease in 2011," Basu says. "The pace of recovery in the nation's nonresidential construction industry remains soft and 2012 is positioned to be a year of slow gain. The first half of 2012 may be particularly challenging, a reflection of the soft patch in economic activity experienced during much of the first half of 2011.”
Basu claims the direction of the dollar will also have a significant impact on how things play out for the industry in 2012, "The direction of the U.S. dollar will play a major role in determining construction input prices in 2012. However, the dollar's direction is far from obvious. 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."
What segments are the ones to watch in 2012? Basu explains that there are a few opportunities even in the slow environment.
"However, certain segments are better poised for growth than others. Leading the way in recent months has been construction related to the nation's power industry, which ABC projects to expand 11.4% during the course of 2011," says Basu. "The driving force for the United States appears to be in energy, and the growth of this economic segment has been evident in a number of states, including Texas, Oklahoma, North Dakota and Pennsylvania. ABC expects power construction to continue to lead the way with a projected 9% increase in spending in 2012.”
"Health care represents another likely candidate for economic expansion. This is true for a number of reasons, including thawing credit markets, the nation's demographics and health care reform, which will continue to increase the number of Americans with insurance and therefore enhance utilization," Basu says. "Because of this, ABC projects health care construction spending to increase by 8% in 2012.