Is the Construction Industry Headed for a Recovery?

By August 16, 2011Uncategorized

The recent recession has hurt our nation and the rest of the world, and the construction industry has been one of the worst hit. According to the US Bureau of Labor Statistics, unemployment in the construction industry has reached a high of 27.1% (February 2010); however, recent data suggests some improvement. Unemployment in construction is declining – it was down to 15.6% in June, the lowest rate since December of 2008. This is still very high, but a nice improvement compared to the previous two years. Below is a graph and spreadsheet exploring construction unemployment since 2001:  

Unemployment in the Construction Industry

Source: US Bureau of Labor Statistics

Source: US Bureau of Labor Statistics

 

New Construction Versus Alterations

Along with construction unemployment data, we took a look at the current construction starts for nonresidential construction. We were able to obtain information from Reed Construction Data, LLC on this subject. A key trend that Reed Construction Data, LLC has followed during the recent recession is the proportion of new non-residential construction versus alteration (renovation) spending. This proportion shows what construction spending is going towards; is money being spent on new construction or going to alter existing structures? As you might imagine, in a time of uncertainty, people are more conservative. It usually costs less to renovate rather than to build a completely new structure.  Therefore, fewer new projects have started and more existing structures are being renovated. New construction is currently 54.9% of total construction; this is down from 69.5% in 2007. Historically, new construction is 60% of construction activity.    

Source: Reed Construction Data, LLC

Construction in 2011 versus 2010

Where does nonresidential construction spending stand next to 2010 levels? In 2011, we should see a ~7% increase in non-residential construction dollars spent and a ~6% increase square footage created.  The graph below looks at the percentage changes from 2010 in construction activity by region. As indicated in the graph below, New England, the Mid Atlantic, and the Mountain (Rockies) regions are seeing a major increase in activity.    

Source: Reed Construction Data, LLC

How does 2011 construction activity (segmented by type of construction) compare to 2010 data? The graph below looks at the % change in construction starts in 2011 from 2010 levels based on the type of construction. The construction in manufacturing and parking garages saw a huge jump in activity. Also, military and amusement construction saw sizeable declines:    

Source: Reed Construction Data, LLC

A Look into the Future

There are some positive signs for a recovery in the construction industry. Unemployment in the industry is at a 2 year low and non residential construction activity is up from last year. However, the continuing increase in alterations versus new construction is troublesome. New construction is currently at 54.9% of total construction; we would like to see this closer to 60%. The future of the construction industry is still very uncertain; however, we are seeing some good indicators. Expect the recovery to be slow and steady.