The construction industry continues to struggle this year, with the American Recovery and Reinvestment Act of 2009 only somewhat softening the blow of the downturn.

The construction industry has not been exempt from the downturn. In fact, with the dismal housing market remaining depressed due to rising foreclosures and ongoing job losses, the doldrums are rippling across much of the economy, including home builders, cement companies, pickup-truck manufacturers and thousands of small businesses that cater to contractors and construction firms.

Because the construction sector is not expected to bounce back at the same time as the overall economy, the construction outlook for this year has been revised down in several reports.

FMI, the largest management consulting and investment banking firm for the construction industry, recently lowered its construction outlook to reflect the mixed results from economic indicators such as consumer spending and inflation, according to CENews.com. The consulting firm predicts total construction in 2009 to be down 1 percent due to decreases in residential construction that will not be offset by gains in non-residential and non-building construction.

McGraw-Hill Construction also updated its 2009 outlook to mirror the still weakened economy.

“The construction industry is facing divergent forces in 2009,” Robert Murray, vice president of economy affairs for McGraw-Hill Construction, said. “The economy has weakened substantially, and despite all the efforts last fall directed at thawing frozen credit markets, there’s yet to be any sign that lending conditions for construction have improved.”

According to the American Institute of Architects‘ (AIA) business trends and outlook report for 2009, credit availability continues to be a serious problem for the construction industry. Of the construction firms polled, 48.2 percent said credit lending was much more restrictive. (For the full report, go HERE.)

The lack of demand leads to lack of financing, resulting in fewer projects and in turn, greater job losses. “The construction industry has taken some of the steepest losses,” AIA says. “Though the construction industry accounts for just over 5 percent of all payroll employment in [U.S.] economy, it has absorbed over 20 percent of job losses since the national economic downturn began.”

As of last July through April this year, architectural firms have lost nearly 31,000 positions, almost 14 percent of total employment at firms, AIA adds. However, there are signs that the economy is on the mend, though construction tends to lag behind recovery, AIA explains.

“[T]he federal stimulus bill is now in place, which will provide quick support to public works this year,” McGraw-Hill notes.

According to McGraw-Hill’s research, the American Recovery and Reinvestment Act of 2009 will cushion the drop in new construction starts. These are estimated to be down 15 percent to $463.1 billion.

Public works are expected to see the greatest benefit from the stimulus package, with construction starts rising 10 percent, including a 15 percent rise for highways and bridges, McGraw-Hill says. Without the stimulus, public works for 2009 would fall 10 percent because of the deteriorating fiscal health of state and local governments.

Despite the stimulus, institutional building construction will decrease 6 percent and commercial building will drop 27 percent, which is more than the 17 percent slide reported last year, and will fall another 15 percent in 2010, McGraw-Hill says. Furthermore, the AIA says stimulus spending will leave much of the commercial and industrial sectors on their own. Residential and nonresidential building stimulus projects are estimated to be about $35 billion to $45 billion over the next two years, a small portion in a $400 billion-a-year sector.

“The [construction] industry will see no relief this year, but the decline will moderate somewhat as we move through 2010,” AIA notes. For example, the AIA Consensus Construction Forecast Panel projected a 16 percent decline in nonresidential construction activity this year, and an additional drop of almost 12 percent in 2010.

McGraw-Hill reported non-residential building construction starts were down 43 percent the first five months of 2009 compared to the same time in 2008. Additionally, residential building projects are anticipated to fall an additional 31 percent.

Recent construction reports have reflected the dreary forecasts. The Census Bureau‘s May report on construction spending in the United States showed that U.S. construction spending fell 0.9 percent in May, the lowest rate in more than five years. The drop was more than expected, with economists polled by Reuters anticipating a fall of only 0.5 percent.

A rare bright spot in the industry, green building is expected to grow more than 60 percent this year, fueled by the administration’s focus on the green economy and energy concerns, Residential Architect Online reports. According to Residential Architect, green building will shift to greening existing buildings rather than building new ones, and LEED Platinum-rated projects will become more commonplace.

For the rest of the industry, some economists are hopeful for a summer recovery. Reed Construction Data expects an upturn in the housing market this summer to be fueled by federal subsidies and by a growing share of prospective buyers and investors who believe the prices have bottomed or are near bottom, HousingZone reports.

The most recent residential construction report from the Census Bureau is certainly supporting that theory. According to the report, privately-owned housing starts in June were 3.6 percent higher than the May estimates, albeit 46 percent below the June 2008 rate. Building permit authorizations, which are indicative of future construction activity, were also up 8.7 percent in June from the May rate.

Additionally, a recent report from business services firm BDO Stoy Hayward named the U.S. as the best destination for inbound construction activity.

“Given the size of the nation, and its ability to fund major infrastructure upgrades even in a time of crisis, this is an unprecedented opportunity for the construction sector by any standards,” BDO notes. “There may be factors which make doing business in the U.S. tricky, but given the scale of the building projects to be undertaken, it is definitely not a place construction companies will want to ignore.” (For full profile on the U.S., go HERE.)

Whether that means more foreign investment will flow in for construction this year has yet to be seen. Right now, it seems that the construction industry will not begin rebuilding until 2010.

Resources

2009 Construction Forecast Revised
CENews.com, June 17, 2009

Construction Outlook 2009: Spring Update
McGraw-Hill Construction, April 11, 2009

May 2009 Construction at $964.0 Billion Annual Rate
U.S. Census Bureau, July 1, 2009

U.S. May Construction Spending Lowest in 5 Years
by Lisa Lambert
Reuters, July 1, 2009

Summer Housing Recovery Still Expected Despite Small Declines in Confidence, Home Prices
by Jim Haughey
HousingZone, June 30, 2009

Business Trends and the Outlook for Architecture Firms
by Kermit Baker
The American Institute of Architects, March 26, 2009

Consensus Construction Forecast
by Kermit Baker
The American Institute of Architects, July 10, 2009

Green Building Trends to Watch in 2009
by Stephani L. Miller
Residential Architect Online, Jan. 16, 2009

New Residential Construction in June 2009
U.S. Census Bureau, July 17, 2009

G20 Inbound Construction Opportunity Map
BDO Stoy Hayward, June 2009

United States: Opportunities and Barriers to Inbound Construction
BDO Stoy Hayward, June 2009