Ken Simonson Highlights from

Mid-Summer Conference

AGC of America chief economist Ken Simonson spoke at this year’s AGC/AIA mid-summer conference on Mackinac Island.  He painted a sobering picture of a nonresidential construction market suffering under the negative influences of rising materials prices and a descending residential sector. Even so, in select categories, it’s still offering some opportunities.

For the economy in general, Simonson said our country will probably avoid a recession however, a lethargic economy (increasing from 0.6-2% annually) coupled with an inflation rate of 3-5% will sting many.

Surprisingly, on a national level, non-residential construction at the end of June was up a robust 15% over June 2007 levels. Public construction had also risen at a 5% rate. Yet the residential side was down an alarming 27%. Worse, he added, “are that these figures are in nominal terms,” meaning they didn’t take inflation into account. At the end of June a 10.4% annual rate for construction materials was being recorded, about twice the rate of the nation’s Consumer Price Index.

“I think we’re going to be in a protracted period of sluggish growth,” Simonson said, forecasting that much of it will impact construction during the next six months. He said he expected the nonresidential market will experience a 2008 growth rate of only 4-8% nominally, with the skyrocketing cost of materials dragging it down in real terms, possibly into negative territory.

According to his data, while the nation’s CPI from December 2003 through last June rose a total of 19%, the rise in construction materials cost during the same time was 41%, or slightly more than twice as much. For some items it was considerably more, such as for diesel fuel, plastics, and steel mill products. He said not to expect any significant changes in this pattern for the foreseeable future.

Simonson said he expects a tapering off of office and retail construction by the end of this year, as vacancy rates rise and housing starts continue to fall. Both of these nonresidential markets could plunge into negative territory in 2009. K-12 school construction may see a 3-6% increase before inflation. Lodging construction, which saw a phenomenal 58% increase in 2007 and was increasing at a 40% annual rate through this June, will probably top out and fall by the year, to a growth rate between -5% to 5%. He said the market in Las Vegas, Nevada, for huge casino complexes was already contracting.

Where the nonresidential construction market appears to be shifting is toward power and energy construction, rising at annual rates of 36% and 41% respectively at the end of June, as well as university and college construction, which was pegged at a 19% positive rate. Simonson said he expected these growth rates to decline but still be strong by the end of this year, with power and energy both expanding at a 20-30% rate into 2009, and higher education at 10-15%. Hospital and communication system construction should also see growth in the 10-15% range.

Ken’s regular DataDIGest reports are included in each week’s Midweek Briefing as well as his latest Michigan Economic Fact Sheet and Construction Inflation Alerts.

New Programs Added to ConstructED Training Schedule

The following ConstructED workshops were created specifically to meet the needs of AGC of Michigan members.

Building to LEED-NC Course - September 18, 2008 - Brighton
This full-day course will provide an overview of the LEED-NC rating system with a focus on the means and methods of construction. [additional details & registration]

ConsensusDOCS: A New United Voice for Construction Contracts - September 25, 2008 - Lansing
Attend this seminar to learn more about the ConsensusDOCS, how they compare to the AIA documents and why they are gaining propularity. [additional details & registration]

Silver Bullets to Improve Project Profitability - October 24, 2008 - Brighton
At this half-day workshop attendees will participate in hands-on exercises in project execution awareness, planning and measurement. Topics that will be covered are financial overview, pipeworks, motivational tactics and meeting management. [additional details & registration]

Welcome New Members

Please join us in welcoming the following new members to the AGC of Michigan.

Constructors

• Capitol Construction Management, Inc.
  Flint
• O'Brien Edwards Construction Company
  Detroit

• Osprey Construction & Development
  Brighton

• Rockford Construction Company

Grand Rapids

 

Constructor Associates

• Auto Glass of Michigan, Inc.
  Farmington Hills
  

• AJAX Paving Industries, Inc.
  Troy

• Catalyst Management Group, LLC
  Pontiac

• De-Cal, Inc.

Warren

• Gogebic Mechanical
  Ironwood

Suppliers

• Biewer Lumber Company, Inc.
  St. Clair
• Stephens Pipe and Steel
  Grand Rapids

Professional Service Provider

• Construction News Service
  Wyoming
• Szura Insurance Services
  Rochester
  

Sustaining

• Columbia Partners, LLC
  Chevy Chase, MD