AIA Forecast: Lackluster 2008, Worse 2009, But No Major Recession

The latest semiannual construction forecast from the American Institute of Architects, released today, foresees “a mild decline” of 1.9 percent in nonresidential construction activity in 2008, followed by a more severe decline of 6.7 percent in 2009. This latest forecast is in contrast to the AIA’s previous semiannual forecast, in December, in which the AIA Consensus Construction Panel predicted modest growth in inflation-adjusted nonresidential construction spending this year, with a modest decline next year. Because of the continued weakening of the overall economy, however, the current outlook is somewhat more negative. The report notes that the U.S. gross domestic product grew by less than 1 percent (seasonally adjusted and annualized) during both the fourth quarter of 2007 and again during the first quarter of 2008. Most of the panelists don’t foresee better numbers when the second quarter estimates are released at the end of this month. That said, Kermit Baker, Ph.D., the AIA’s chief economist, noted in the report that, “Even with the downward revision of these forecasts from last winter, they remain in a range that would produce a relatively modest drop-off in nonresidential activity; significantly milder than the two most recent nonresidential recessions of the early 1990s and earlier this decade.” Moreover, the projected slide in nonresidential construction spending is noticeably uneven across specific commercial and institutional sectors. Though the outlook for almost every nonresidential sector in the forecast has declined, the office, retail and hospitality sectors are predicted to be harder hit. Commercial 20082009Retail –8.3% –9.9% Office –3.7% –12.3% Hotels +6.6% –9.9% Industrial +4.6% –5.5% The institutional side, however, will for the most part be more stable this year and next, according to the AIA forecast. Institutional20082009 Healthcare +0.2% +1.1% Education +2.7% –1.1% Amusement +3.6% –8.5% Public safety +5.9% –1.9% Religious –11.7% –1.2% Drilling down to the economy’s overall performance, the forecast specifically cites a variety of factors for its increased pessimism, including the slowdown in the housing sector, climbing unemployment, falling consumer confidence, rising inflation (driven by both gas prices and other factors) and slowing retail growth. With respect to the latter, the report noted that the International Association of Shopping Centers anticipates the closing of more than 6,000 retail stores this year, the most since 2001. Finally, Baker noted the ongoing higher costs of construction materials, especially petroleum-based materials, steel, concrete and stone.Blog Comments