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Report: Recession Not Over for Commercial Contractors

Glimmers of hope, but no real growth.

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The Federal Reserve may have declared the recession over, but that’s not the case for the construction sector as companies continue to lay off employees, according to the Nonresidential Construction Index Report from industry consultant FMI.

FMI, based in Raleigh, N.C., reports in the first-quarter NCIR survey that construction industry executives across the country see some glimmers of hope, but no real growth.

Terry Dunn, CEO of Kansas City-based JE Dunn Construction, said that while the survey is helpful for a broad perspective, recovery will vary from region to region. Southern areas such as Texas are emerging more quickly, while Kansas City probably will track closely with the national trend, seeing a fairly slow recovery, he said.

The first-quarter FMI survey carried a reading of 48.4, which was a positive move from the fourth-quarter reading of 47.7, but still below the score of 50 indicating growth.

“Overall, we think we are seeing signs of recovery in the responses to this quarter’s survey, but that recovery could be very slow, especially if financial institutions continue to keep a tight rein on loans and owners are reluctant to build once their markets improve,” the report states.

Construction of health care facilities was the only sector showing relative strength in 2010. Executives surveyed predict some improvement in most building sectors except for lodging and office buildings.

In Kansas City, new construction for office buildings is slow or nonexistant, though renovations are picking up, Dunn said. The movement in secondary markets, such as for tenant improvements, shows that demand is building, he said.

Increases in the cost of materials and labor were seen as negative factors in the index calculations. About 52 percent of the respondents expect reductions in staff for 2010, compared with the 64 percent that were downsizing in the first quarter of 2009.

That most likely signals continued pressure to rightsize, Dunn said, adding that the bottom could come in the second half of the year.

The survey also said some construction companies were making strategic hires to prepare for an economic rebound.

Productivity improved to 62.1 from 61 in the first quarter as companies did more with less.

The rate of delays and cancellations was steady, with construction executives estimating that 20 percent of their projects have been delayed and 10 percent have been canceled.

“Ironically, this is an area where those trying to avoid risk are likely causing more risk for everyone,” the report stated. “Owners that see their markets stabilizing or growing and can find alternative funding for projects will continue to have the advantage as long as this ‘buyers’ market’ continues.”

Source: Kansas City Business Journal