Mortgage rates, labor shortage may cool growth
By Industrial Distribution Staff -- Industrial Distribution, 10/1/1999
SOME CRACKS HAVE SURFACED across booming construction markets, but 1999 should finish as another incredible year overall.A rise in mortgage rates triggered by the Federal Reserve's recent interest rate hikes may cool the pace of non-residential and new home construction early in 2000. In some regions such as the Midwest, combined shortages of supplies like drywall and concrete and a lack of skilled labor contributed to a sharp drop in building permits for single family homes. Overall construction spending dipped lower than expected in July nationwide.
Still, through the summer's end the momentum remained strong for home building and several other commercial sectors.
Much of the upward push in non-residential building came from growing activity in varied institutional construction segments. Public buildings such as prisons and courthouses jumped 89 percent in June, for example, construction analyst F.W. Dodge reported, while transportation terminals, health care facilities and amusement-sports projects posted strong gains.
"Of significance, while single family housing is now settling back from its exceptional performance at the start of 1999, the slack is being picked up by stronger contracting for both non-residential building and public works," says Robert Murray, vice president of economic affairs for F.W. Dodge.
Cahners Business Information forecasts an overall increase in non-residential construction of nearly four percent this year, and only 1.9 percent next year. Through May, the only sectors seriously lagging were industrial building and private educational facilities, which were down 25 percent and 20 percent compared to 1998, respectively.
Meanwhile, Cahners forecasts the value of new single family homes to slightly eclipse last year's records, and then drop four percent next year.
Industry analyst FMI Corp. expects a three percent rise in non-residential construction spending this year and FMI economist Thomas Loy predicts a 16 percent hike for the housing market. Loy predicts the value of single-family home building will drop one percent next year.
"I think we'll have a slowdown" by the end of 1999, says Loy, "but I still think [single family homes] will be substantially above last year."
One distributor serving commercial contractors from Ohio to Pittsburgh and Charleston, W. Va., says the labor shortage has prompted some customers to retain union workers in between projects, rather than do temporary layoffs.
Paul Klmec, owner of MEBCO Contractors Supply near Cleveland, said glass and glazing contractors know that if workers "went back there to the union hall they would be grabbed ... there's so much work there no one is not busy."
Klmec does not expect to see any impact from interest rate hikes until well into next year, saying many of his customers are already booked well into the winter. Metropolitan Cleveland, for example, is booming with new offices, hotels and satellite medical centers in the suburbs.
"I think we're in such a great boom right now, why does the federal government want to screw things up?" he says. "I don't think there's ever been a time in our history where we've had this kind of construction work."
In another measure of activity, 186 members of the Specialty Tools & Fasteners Distributors Assn. reported an average revenue increase of 11.4 percent during the second quarter. The strongest gains came in California, the Northwest and Mid-Atlantic regions.
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