Recovery question marks

What segments will lag in 2013? Office, retail and public construction appear to have the poorest chances of posting significant improvement. Despite almost three years of steady gains in employment, the private sector still has nearly four million fewer jobs than in 2008. Firms are taking up as much as 30% less office space per employee than they did five years ago as they use more temps and teleworkers, and ditch their computer and filing rooms for the “cloud.” The shift of consumers to online purchasing has left retailers closing more stores than they open.

As for the various levels of government, the federal government seems headed for years of declining employment and spending on facilities. State governments have had rising tax revenues but have had to spend more on Medicaid and other income support programs and on public employee retirement and health plans, leaving little for new construction. Local governments and school districts that depend on property tax receipts are still experiencing shrinking budgets, as the recent upturn in home prices will take a couple of years to show up in assessments.

Two big mysteries for 2013 are single-family housing and hospital construction. While homebuilding has clearly moved off its low point, it is not clear that further increases lie ahead. Hospital construction has remained in the doldrums even though private university construction, which similarly relies in part on private donations and endowments, has resumed double-digit growth. It may take more time to sort out the impact of the Affordable Care Act on demand and funding for hospitals.

Lucky numbers?

Contractors should have better luck in ’13 on materials costs. The producer price index for inputs to construction – a weighted average of the cost of all materials plus items consumed by contractors, such as diesel fuel – rose sharply at the beginning of 2012 but was tame in the second half of the year. Diesel fuel prices hit a four-year high in October but ended the year close to late-2011 levels. Cement and concrete prices were well-behaved all year, and steel prices were actually lower in most of 2012 than in the same months of 2011. With spotty growth in the U.S. economy, recession in much of Europe and a slowdown in China, 2013 should start out with continuing moderation in most materials costs.

The fate of many contractors and other businesses also will depend on how Congress and the White House resolve their differences over expiring tax provisions, spending programs and the debt ceiling. As always, economic, political and military developments in other parts of the world can have major implications for U.S. growth rates and materials costs. In short, ’13 will be a lucky year for many contractors but holds an uncertain fate for others.

Ken Simonson has been the chief economist of the Associated General Contractors of America, the leading trade association for the construction industry, since 2001. He is also the 2012-2013 president of the National Association for Business Economics, the professional organization for individuals who use economics in their work. He has 40 years of experience analyzing, advocating and communicating about economic and tax issues.


This article originally appeared in Precast Inc., March-April, 2013, published by the National Precast Concrete Association. For an archive of similar articles and other precast concrete industry news, please visit http://precast.org/publications.