Moderate growth in nonresidential spending to continue
By Daryl Delano -- Industrial Distribution, 5/1/1999
The final three months of last year were surprisingly good ones for the nonresidential construction market. In the immediate aftermath of global financial market turmoil between mid-September and mid-October, the quarter began with serious concerns that a "credit crunch" would cause many nonresidential projects on the books to be postponed or cancelled. Although these fears weren't totally unrealized, by the end of the year money was flowing freely again and new projects were being permitted and funded.Fourth-quarter 1998 spending for many sectors of nonresidential construction work actually accelerated from the third-quarter pace. Overall nonresidential construction spending in the final quarter of 1998 was 4% greater than during October-December 1997. Over-the-year growth during the third quarter of the year had been only 1.5%.
The biggest improvement during the final quarter of the year came in the commercial sector; industrial and institutional construction work continued to languish. Industrial construction spending was 4.4% lower in the fourth quarter of 1998 than during the final three months of 1997.
The institutional sector had an uncharacteristically lackluster year during 1998. This least cyclical of major building groups actually weakened during the final months of the year. The hospital/healthcare facilities sub-sector was by far the weakest performer within the institutional group.
For the year as a whole, spending on new nonresidential construction work increased by 2.7% over 1997 levels. The institutional sector came in short of forecast expectations, while the industrial sector had a poor year -- as expected, given the global economic problems that had already become evident at the beginning of 1998. The big surprise, and the one that drove overall nonresidential spending higher than originally anticipated, was in the commercial sector. The office sector was expected to have another solid year, but double-digit growth didn't seem to be in the cards. Such was the case with the hotel/motel sector, where a couple years of strong growth seemed unlikely to be extended. And even the retail sector, where construction spending fell by 1.5% from the 1997 total, wasn't as weak during 1998 as had been anticipated-thanks, in part, to consumer spending growth during the year that was the strongest since 1984.
Our forecast anticipates another tough year for the industrial sector, although we believe that we've about reached bottom and that some small spending growth is likely in 1999. The institutional sector should bounce back, helped by the demand-inducing forces of demographic change; the 1998 experience for this sector should prove to be anomalous, not the beginning of a new trend. And we think that recent overbuilding will finally catch up with the retail and hotel sectors in 1999 and 2000, although low vacancy rates should ensure continued solid --if slower -- growth in the office sector.
There are no other articles related to this article.Talkback
Related Content
Related Content
Sponsored Links
View All Blogs
