North American Construction Activity Expected to Decline 6.3% Next Year; Predicted to Recover By 2003 According to CMD Conference

Oct. 23, 2001
Speakers at CMD's North American Construction Forecast Conference Address the Uncertainties of Today's Construction and Overall Economy

WASHINGTON, D.C. - Construction industry analysts and economic forecasters at CMD's 6th annual North American Construction Forecast conference delivered bad and good news: the rest of 2001 and much of 2002 will see declines in construction activity and the economy in general. But most presenters also predicted quick recovery by 2003. The event was held October 16 at the National Press Club and attended by more than 300 construction industry leaders.

According to Bill Toal, chief economist for the Portland Cement Association, the U.S. construction industry can expect an overall decline of 6.3 % in activity next year due to the economic downturn. Still, "by historical contrast this would put construction spending back to slightly above 1998 levels, which were record levels of activity," he said.

"We expect a 10 % decline in private, nonresidential construction spending next year after a 5.4 % drop this year," Toal said. On the residential side, increased unemployment and stock market volatility will hit the consumer causing home sales to decline by 8.5 % next year after increasing by 1.2 % this year.

David Seiders, chief economist for the National Association of Home Builders (NAHB), agreed that the residential market has been hurt and will continue to suffer in the immediate future. He pointed out that industry sales are now about the same as the mid 90s, which is "not that bad … baby talk when compared to the 80s and early 90s."

Toal and Seiders said it won't take long for the construction industry to recover. Toal predicts the construction industry overall will see a 4.2 % increase by 2003 and Seiders forecasts recovery for residential markets to begin as early as the first quarter of 2002. Toal, Seiders, and other construction industry analysts, as well as experts from Canada and Mexico, shared their outlook on the economic state of the nation and the construction industry. Following are excerpts; complete coverage can be found at

U.S. Construction Outlook: Toal attributed the decline in construction activity in part to a "hole in the economy. The economy was already weakening significantly before the events of September 11." Forecasts have been revised down further because of those events. For the overall economy, Toal revised his spring forecast of 1.7 % growth in economic activity down to 1 % growth for 2001. He revised his overall economic growth rate predictions for next year to 1.8 % down from his prior forecast of 2.7 %. In contrast to the declines in residential and nonresidential construction, public construction was predicted to grow slightly, albeit at a much slower rate than it has for the past two years.

Residential Construction Outlook: Seiders said NAHB adjusted its housing market index following the September 11 attacks. About 10 days after the attacks, housing production fell by about 5 %, he said. In a supplemental survey of homebuilders, 56 % of respondents said new home sales had declined even further in the wake of the attacks. Figures released a few hours after Seiders' speech showed the NAHB monthly index dropped 8 points from 56 to 48.

Retail/Industrial/Commercial Outlook: Glenn Mueller, professor, John Hopkins University Real Estate Institute and managing director, Real Estate Investment Strategy, Legg Mason, Inc., said there are two ways to look at how construction is faring: the physical realities of demand and supply and the financial realities of where capital is flowing and how it affects pricing. For example, demand and supply in the office sector has reached some equilibrium after several decades of dramatic swings in what was available and who wanted it, he said. Those levels will remain somewhat balanced though both sides will be lower for the next year or so, he said.

Except for a the short term displacement from the tech bubble bursting and the 9/11 economic slowdown. As far as financing for the different segments, the late 80s saw a phase of false price appreciation from too much financing that peaked in the first quarter of 1996, then began to fluctuate widely through the 90s as the public markets became more involved in financing real estate. Originally, Mueller predicted the physical cycle would be bottoming in 2001 then returning to a growth phase by late 2002, but the September 11 events may push that into 2003 he said. Capital flows will be affected by fear. However, the lowest interest rates in this lifetime have created significant opportunities for investing in real estate, he added.

Federal Reserve Regional Outlook: Ray Owens, research officer and economist for the Federal Reserve Bank of Richmond, said Northern Virginia's commercial real estate market has reflected national trends in the last year: increases in office vacancies and subleasing were helped along by the decline of the high technology industries. He predicted that vacancy rates, while on the increase, would level out during 2001 and would not get anywhere near the historically high levels of the early 1990s.

Federal Construction Outlook: Edward Feiner, FAIA, chief architect, U.S. General Services Administration, said public architecture no longer consists of "finding ways to build great boxes," like most federal buildings used to be. Many old buildings are being retrofitted for a more modern look, as well as better building security and seismic protection. Feiner said the events of September 11 and the bombing of the Oklahoma City federal building will not frighten government building out of downtowns.

Major Projects and Trends for 2002: A panel of leading design, construction and engineering experts outlined the trends for the built environment based on recent and planned projects.

  • Edward Friedrichs, FAIA, president and CEO of Gensler, mentioned several adaptive reuse projects of structures that had not attained sufficient occupancy rates, such as turning a large plant into a mega-church.
  • Ray Messer, PE, president and chairman of the board for Walter P. Moore, said new business is coming in from many areas of the country that need to build up deteriorating infrastructure.
  • Pat Priest, CFO/Managing Director of The Beck Group, noted that early signs indicate changes in the basic design/engineer/estimate/construct process. Instead of acting in different "silos," companies are forming teams among its experts to deliver projects quicker, with fewer prices and at less cost.
  • Harold Adams, FAIA, chairman of RTKL, which just won a contract to work on replacing parts of the Pentagon, observed that while the rest of the world is seeing slowdowns, China is an active market.
  • Stephen Fiskum, COO of Hammel Green and Abrahamson said one of the greatest challenges firms face is to maintain strong balance sheets by containing expenses instead of looking for new ways to invest.

Canadian Outlook: Alex Carrick, chief economist for CanaData, expects Canadian housing starts, which had grown to 162,000 average units per month from January to August this year, will probably fall nearer to 157,000 starts per month by year end and 153,000 starts in 2002. He said the events of September 11 will cause the broad-based demand for high-rise condos to suffer. Most provinces will also see a decline in commercial, industrial, and institutional construction starts, which he predicted would be off by just over 1% for the country as a whole.

Mexican Outlook: Mario Rodarte, chief economist for the Center for Economic Studies for the Private Sector, said the Mexican economy is still growing and inflation levels are lower than predicted. However, the construction industry, which comprises 4.2 % of the nation's GDP and employs 6.3 % of the workforce, is not faring well under current economic conditions and is expected to decline modestly in 2001.

For more construction forecast information from CMD's North American Construction Forecast speakers, please visit

CMD's annual North American Construction Forecast conference assembles leading economists and analysts in every area of construction - office, retail, industrial, residential, and infrastructure - who offer eagerly anticipated forecasts of coming year construction throughout North America and by specific metro region. More information about the conference is at

CMD is a leading worldwide provider of quality construction information products and services designed to advance the businesses of its customers with timely, accurate and actionable project, product, and cost data. CMD collects, adds value to and distributes construction industry information through print and online references and resources for architects, engineers, contractors, manufacturers and other professionals in the construction industry. Founded in 1975, CMD is an active participant in the construction industry, partnering with its customers and industry associations to meet customer information needs. For more information, visit or call 1-800-793-0304. CMD is a division of Cahners Business Information, a member of the Reed Elsevier plc group.

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