NYC Magazine Trip Ground Zero

According to a leading industry economist, commercial construction activity in the United States is set to grow by at least 10 per cent next year but job growth will remain subdued and material prices are expected to rise at a slightly increasing rate.

In his latest forecast, Associated Builders and Contractors chief economist Anirban Basu has predicted the overall value of non-residential construction to increase by 5.2 per cent next year following a rise of a similar magnitude this year.

Leading the way will be the office, commercial (office and lodging) and power sectors, each of which is expected to see growth of around 10 per cent.

Though other sectors are expecting more modest growth rates, no sector is expecting a fall in activity.

Basu said expectations of modest growth persist despite subdued economic conditions amid rising consumer confidence, a reasonably strong forward order book and a number of projects having been put on hold in 2012.

With regard to buoyant expectations within the commercial sector, he said the white collar-dominated professional and business services sector has been the largest growth sector for employment this year, a phenomenon which is translating into demand for office space.

“With the elections now behind us, the hope is the White House and Congress will be able to successfully navigate the nation past its fiscal cliff,” Basu said. “If that happens, the latter half of 2013 could be surprisingly good for non-residential activity given the large volume of construction projects that were put on hold during the course of 2012. However, the baseline forecast calls for only moderate expansion in non-residential construction spending next year.”

US Non Residential Construction Spending

However, Basu is forecasting non-residential construction employment to grow by only 2.1 per cent and predicts that construction material prices will rise a little more rapidly than what they did last year and will be substantially more volatile on a month-to-month basis.

Of course, all of this assumes that the US does not fall off the ‘fiscal cliff’ – a situation many claim would lead to severe damage to the economy as aggressive tax hikes and spending cuts kick in automatically at the start of next year should policy makers fail to agree on deficit reduction measures. Should that happen, some industry associations have warned of significant consequences for building and construction.

Even if this does not happen, however, Basu remains subdued in his expectations for the US Economy, forecasting growth of only one to two per cent – a prediction which reverts to a two to three percent drop should policy makers fail to agree on measures to avoid the fiscal cliff.

“The U.S. economy is presently expanding at a two per cent rate,” Basu said. “Even in the absence of a dive off the federal precipice, the nation will struggle to achieve 2 percent growth next year as certain tax rates rise and as federal spending growth slows and perhaps turns sharply negative.”

Image Credit: Illinois College of Media
By Andrew Heaton