Construction spending expected to dip in '98
By Staff -- Industrial Distribution, 2/1/1998
Newton, Mass.--Construction spending is expected to cool down this year after solid growth in the mid-90s, but some distributors anticipate sales will remain strong.Non-residential construction across the country should flatten following a 7.7 percent increase in 1997, according to FMI Corp., a Raleigh, N.C.-based management consultant to the construction industry. Sharp declines are expected in the construction of industrial buildings (nine percent), amusement centers (13 percent), new hotels and motels (nine percent).
FMI also predicts modest reductions in new office and retail construction. Indications of a slowdown in overall construction spending emerged recently when the Commerce Department reported a 0.9 percent slide for November -- the first decline in five months.
New schools and colleges will be the strongest segment this year with eight percent growth, followed closely by new public safety construction such as prisons and government offices, FMI expects. The study looks for growth in the utility sector, partly because of emerging microwave communications and business's demand for telephone lines, while new hospital and nursing homes should grow modestly.
Thomas Loy, FMI's construction economist, says a drop in new industrial plants the past few years coincided with increasing investments "inside the buildings'' that boosted manufacturing productivity. "The capital has been spent on improving machinery and things inside," he says. "Industrial distributors have done a lot better than new building expenses" might indicate.
Weak demand for manufactured goods, worsened by a decline in exports to suffering Asian economies, will further reduce capacity utilization and the need to build more plants, Loy says.
In another forecast, Reed Elsevier Business Economics expects industrial building construction to rise 3.8 percent this year and total nonresidential building to grow by only 3.3 percent. Renovations and expansions of existing plants will be the key to industrial growth, according to Reed's Outlook for 1998. The report also notes industrial vacancy rates stabilized in 1997 after several years of decline.
Some distributors say there is enough diversity of work in their markets to offset any slowdown in plant construction. Michael White, general manager at Mining & Construction Suppliers, Inc. in Tucson, Ariz., expects continued balanced growth in Arizona that includes new large manufacturing projects by Intel and Motorola in Phoenix, plus shopping centers, government projects like the new Tucson federal building and subdivisions. His company's sales shot up 63 percent in December compared to a year earlier.
White believes the Southwest has a diverse regional economy that is less vulnerable to the demise of one or two key industries than perhaps five years ago. "It's not as much a factor of the national economy or regional (economy) as working harder to expand your market share,'' he says. "We're forecasting a good year."
Paul Connelly, president of Construction Tool Service, Inc. in Pittsburgh, Pa., has seen the opposite end of the cycle for several years: aside from new computer software companies, construction has been dead. "We haven't had a downtown building since the late 1980s. Not a crane in sight,'' he says.
Yet Connelly is optimistic several long-awaited projects like a new convention center and airport hotel will help turn the tide. He also hopes the impasse over building new football and baseball stadiums in his city will be overcome.
"We're just rust-belting along and surviving.'' he says. "We just need an injection of vitality and I think we're very close to having it happen.''
Nonresidential Construction Spending
After boom year, expect modest construction growth
Annual % change
1997 1998
Overall nonresidential construction 8.5 3.3
Office buildings 14.1 4.2
Retail buildings 2.7 -5.2
Hotels/motels 14.0 4.2
Industrial buildings 0.3 3.8
Health facilities 14.1 5.6
Educational facilities 15.2 14.3
Source: Reed Elsevier Business Economics, U.S. Commerce Department
Talkback
Related Content
Related Content
Sponsored Links
View All Blogs
