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Tue, Jul 14, 2009 - Page 10 News List

US commercial construction drops

LAG EFFECT Commercial and residential building, which often lag behind overall economic trends, are projected to drop by 16 percent this year and 12 percent next year

BLOOMBERG

Construction spending on offices, retail centers and hotels is likely to fall 16 percent this year and 12 percent next year, more than previously forecast, the American Institute of Architects said.

Rising unemployment and reductions in business spending prompted the Washington-based institute to cut its outlook from January, when it predicted non-residential construction spending would drop 11 percent this year and 5 percent next year.

“We’ve had a really rocky six months in the economy and in the construction sector,” Kermit Baker, the institute’s chief economist, said in a telephone interview. “People are seeing a real tough environment out there and not a lot of incentive to invest in projects.”

Sentiment among US consumers dropped this month as the country’s unemployment rate approached 10 percent, a Reuters/University of Michigan preliminary index showed. The economy probably shrank at a 1.8 percent rate from April to last month, a Bloomberg News survey showed. Nonresidential construction tends to lag behind the economy, Baker said.

Spending on office buildings is forecast to sag 22 percent this year and 17 percent next year, while retail construction will probably sink 28 percent this year and 13 percent next year, the architects group said.

“Why do you build new office buildings? You need to see job numbers pick up,” Baker said. “Why do you build new retail centers? You need to see consumer spending pick up.”

Hotel construction is likely to decline 26 percent this year and 17 percent next year, the institute said. Industrial spending is forecast to dip 0.8 percent this year and 28 percent next year, the report said.

The Consensus Construction Forecast uses projections from sources including Global Insight Inc, Moody’s Economy.com, the Portland Cement Association and management consulting firm FMI Corp. The report forecasts US construction spending, adjusted for inflation, over the coming 12 to 18 months.

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