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Wednesday, December 22, 2010
2010 Year in Review
While 2010 was a forgettable year for the nation’s construction industry, it behooves us to take a look back to assess our past circumstances and explore the trends that emerged during this tumultuous timeframe. Contractors who study the issues and circumstances that created the upheaval will be better positioned to take advantage when the business and regulatory climate normalizes.
ECONOMY
Any examination of 2010 must start with the economy. Though construction obviously isn’t out of the woods yet, there is a discernable thinning of the trees, and there’s realistic hope that a clearing looms just ahead. Some unexpected good news came with the October construction spending report. Both private and public construction investment showed signs of life, gaining 0.7 percent for the month. With a similar gain in September, I’m cautiously optimistic that we may be about to turn the corner. Reed Construction Data foresees a modest 0.5 percent gain for 2011 – paltry, to be sure, but a far cry from the 22.8 percent decline this year. The stabilization sets the stage for a 13.4 percent gain in 2013 as we get the train back on the tracks.
TECHNOLOGY
If 2010 taught us anything about the way we run our businesses, it emphasized the need to boost productivity, cut costs, and add value for our clients in order to stand out and succeed among increasingly ferocious competition. Construction’s long-revered “old boy network,” handshake contracts and “the low bidder is always best” mentality have run their course. Clients today demand value and are increasingly able to differentiate between cost and value. This new era in marketing and value-added services has been a boon to construction technology. Today more than ever, builders who understand and use work-saving and cost-cutting technology will continue to get the project.
Among the trends that gained steam in 2010 was lean construction. Long the purview of forward-thinking manufacturing and healthcare organizations, lean has made significant inroads into construction. Builders, not always the most willing to adapt to new realities, are embracing supply chain management, exploring partnerships with other companies and public jurisdictions, and adopting aggressive quality control measures to ensure they are well positioned for the robust economy that will emerge over the next year to 18 months.
GREEN BUILDING
Similarly, contractors in 2010 continued to strive to provide what owners want in terms of sustainable construction. Builders took more active roles in consulting on the constructability of projects and offering green solutions that not only will tax the environment less but also make building management more affordable over the long run. McGraw-Hill Construction’s Green Outlook 2011: Green Trends Driving Growth pegged green building construction at $71 billion, or fully one-quarter all construction in 2010, a figure it says will double by the middle of the decade.
Harvey M. Bernstein, vice president, Global Thought Leadership and Business Development, McGraw-Hill Construction, said builders will miss tremendous opportunities in the future if they don’t catch the green train today. “In today’s economy, firms that specialize in green or serve this market are seeing a tremendous advantage, and they’re doing good at the same time,” he said. “Green building leads to healthier places for us to live and work in, lower energy and water use, and better profitability.”
LABOR ISSUES
The poor economy put thousands of perfectly good construction workers out of work, and companies, like mortgage companies and other lenders are sure to take a “once bitten, twice shy” approach to getting back into the game. The good news for contractors is that temporary staffing agencies offer a way to dip a toe into the labor pool rather than plunging in headfirst by hiring additional staff. Building professionals can try out potential workers by engaging the services of temporary agencies. This “test-drive” makes hiring a bit more of a sure thing, as employers invest relatively little and can reap terrific benefits by hiring only the best-suited workers.
SAFETY
The Occupational Safety and Health Administration cracked down on construction companies and some states’ lax enforcement of jobsite safety rules in 2010, a trend that is sure to continue in 2011. Federal OSHA has opened offices in several jurisdictions where it found the state plan lacking. While federal OSHA personnel will work with contractors on developing acceptable safety plans, a good bit of its effort no doubt will be to correct states’ unwillingness to issue citations for violations. “Our goal is to identify problems in state-run programs before they result in serious injuries or fatalities," said Assistant Secretary of Labor for OSHA Dr. David Michaels. "While we found many positives in the state programs, we also found deficiencies including concerns about identification of hazards, proper classification of violations, proposed penalty levels, and failure to follow up on violations to ensure that workplace safety and health problems are corrected.”
ECONOMY
Any examination of 2010 must start with the economy. Though construction obviously isn’t out of the woods yet, there is a discernable thinning of the trees, and there’s realistic hope that a clearing looms just ahead. Some unexpected good news came with the October construction spending report. Both private and public construction investment showed signs of life, gaining 0.7 percent for the month. With a similar gain in September, I’m cautiously optimistic that we may be about to turn the corner. Reed Construction Data foresees a modest 0.5 percent gain for 2011 – paltry, to be sure, but a far cry from the 22.8 percent decline this year. The stabilization sets the stage for a 13.4 percent gain in 2013 as we get the train back on the tracks.
TECHNOLOGY
If 2010 taught us anything about the way we run our businesses, it emphasized the need to boost productivity, cut costs, and add value for our clients in order to stand out and succeed among increasingly ferocious competition. Construction’s long-revered “old boy network,” handshake contracts and “the low bidder is always best” mentality have run their course. Clients today demand value and are increasingly able to differentiate between cost and value. This new era in marketing and value-added services has been a boon to construction technology. Today more than ever, builders who understand and use work-saving and cost-cutting technology will continue to get the project.
Among the trends that gained steam in 2010 was lean construction. Long the purview of forward-thinking manufacturing and healthcare organizations, lean has made significant inroads into construction. Builders, not always the most willing to adapt to new realities, are embracing supply chain management, exploring partnerships with other companies and public jurisdictions, and adopting aggressive quality control measures to ensure they are well positioned for the robust economy that will emerge over the next year to 18 months.
GREEN BUILDING
Similarly, contractors in 2010 continued to strive to provide what owners want in terms of sustainable construction. Builders took more active roles in consulting on the constructability of projects and offering green solutions that not only will tax the environment less but also make building management more affordable over the long run. McGraw-Hill Construction’s Green Outlook 2011: Green Trends Driving Growth pegged green building construction at $71 billion, or fully one-quarter all construction in 2010, a figure it says will double by the middle of the decade.
Harvey M. Bernstein, vice president, Global Thought Leadership and Business Development, McGraw-Hill Construction, said builders will miss tremendous opportunities in the future if they don’t catch the green train today. “In today’s economy, firms that specialize in green or serve this market are seeing a tremendous advantage, and they’re doing good at the same time,” he said. “Green building leads to healthier places for us to live and work in, lower energy and water use, and better profitability.”
LABOR ISSUES
The poor economy put thousands of perfectly good construction workers out of work, and companies, like mortgage companies and other lenders are sure to take a “once bitten, twice shy” approach to getting back into the game. The good news for contractors is that temporary staffing agencies offer a way to dip a toe into the labor pool rather than plunging in headfirst by hiring additional staff. Building professionals can try out potential workers by engaging the services of temporary agencies. This “test-drive” makes hiring a bit more of a sure thing, as employers invest relatively little and can reap terrific benefits by hiring only the best-suited workers.
SAFETY
The Occupational Safety and Health Administration cracked down on construction companies and some states’ lax enforcement of jobsite safety rules in 2010, a trend that is sure to continue in 2011. Federal OSHA has opened offices in several jurisdictions where it found the state plan lacking. While federal OSHA personnel will work with contractors on developing acceptable safety plans, a good bit of its effort no doubt will be to correct states’ unwillingness to issue citations for violations. “Our goal is to identify problems in state-run programs before they result in serious injuries or fatalities," said Assistant Secretary of Labor for OSHA Dr. David Michaels. "While we found many positives in the state programs, we also found deficiencies including concerns about identification of hazards, proper classification of violations, proposed penalty levels, and failure to follow up on violations to ensure that workplace safety and health problems are corrected.”
Labels: Commercial, Construction Industry, Industrial
Tuesday, December 7, 2010
Economic Outlook for 2011
America’s economy and the nation’s construction industry are treading water. And while that situation is far from comfortable, it does offer some relief from the deluge of malaise that has troubled the industry for nearly three years. It’s bad, but it could be worse. To paraphrase Abraham Lincoln, contractors’ survival strategies amid the downturn are tantamount to holding a wolf by the ears: Builders are not happy with their predicament, but it sure beats the alternative.
And, happily, there are some signs of improvement; the much talked-about but late-in-arriving “green shoots” may have at last poked their tentative heads through the frozen tundra that is the national construction scene. The construction industry may have seen its last year of major contraction in 2010. Signs point to a staging period of up to another year to set the stage for a real recovery in 2012. Construction has weathered the expiration of homebuyer tax credits, the final installments of the federal stimulus program, and the lingering shockwaves from the bursting of the housing bubble. The Bureau of Labor Statistics reported that “mass layoff events,” in which a single employer released 50 or more workers, fell 15 percent year-over-year in October 2010. The news for road and bridge builders was even better, as these stimulus-aided projects helped reduce these events by 33 percent year-over-year.
In fact, according to the Council of Economic Advisors, the third quarter of 2010 saw more than $33 billion invested into clean energy, transportation and other infrastructure projects, creating a million jobs nationwide. The report claims that the stimulus has helped gross domestic product rise for five consecutive quarters, including a 2 percent uptick in the third quarter. It also claims that it "has exceeded the original goal" of creating or saving 3.5 million jobs by the end of the year (you DON’T want to see what that averages out to per job.)
Housing, the stick in the mud that ruined the party for the whole industry, will see a 27 percent rise in single-family residential construction starts in 2012, according to McGraw-Hill Construction. Those numbers aren’t as impressive as they seem, because the baseline is so low, but McGraw-Hill believes retail (and other sectors) will again follow rooftops. The company forecasts increases of 13 percent in office buildings, 25 percent in commercial structures, 13 percent in hospitality construction, and 14 percent in retail.
Reed Construction Data announced that while non-residential construction starts through October 2010 fell 1.9 percent compared to 2009, starts for October boasted a 30% improvement over September. Reed cautioned that October is a traditionally strong month for building starts, but the increase is significant nonetheless. Together, September-October starts were about at the monthly average for the 25 months since the September 2008 financial crisis.
The industry is not out of the woods yet:
• Despite encouraging news on gross domestic product, many economists believe it’s not likely to continue, and even if it is, 2 percent increases aren’t enough to spur job growth and creation.
• The expiration of stimulus funding may leave a difficult hole to fill without private investment picking up the slack.
• Overall unemployment remains stagnant at more than 9 percent, and the construction industry has been hit even harder. Most believe no mass employment relief will be felt until the last half of 2011.
• While Republican victories in the mid-term elections likely will mean lower taxes and a more business friendly environment than if the Democrats had remained in control of both houses of Congress, it also probably will mean a more laissez faire approach to the economy (i.e. no more bail outs)
The ball remains firmly in the residential sector’s court. And there is reason for optimism in the steadying of single family housing starts over the last several months and the uptick in building permits in October, including single-family housing permits rising for the first time in seven months, according to Brian C. Rezny, president of Rezny Wealth Management in Naperville, Ill.
“But there’s more to builders confidence than a good month or two for an index,” Rezny writes. “What’s at play here is a downtrend in new home inventories.”
He cites a National Association of Home Builders report that the country’s single-family housing market “finds itself in a significantly under built state,” a consequence of the major overbuilding in the early 2000s. The residential sector’s response – to stop building houses – leaves the U.S. market “one million units short of what a healthy, functioning U.S. economy would need,” Rezny said. “Once growth stabilizes this means that homebuilders will have some serious catching up to do.”
And the non-residential sectors will follow suit.
Keep praying.
And, happily, there are some signs of improvement; the much talked-about but late-in-arriving “green shoots” may have at last poked their tentative heads through the frozen tundra that is the national construction scene. The construction industry may have seen its last year of major contraction in 2010. Signs point to a staging period of up to another year to set the stage for a real recovery in 2012. Construction has weathered the expiration of homebuyer tax credits, the final installments of the federal stimulus program, and the lingering shockwaves from the bursting of the housing bubble. The Bureau of Labor Statistics reported that “mass layoff events,” in which a single employer released 50 or more workers, fell 15 percent year-over-year in October 2010. The news for road and bridge builders was even better, as these stimulus-aided projects helped reduce these events by 33 percent year-over-year.
In fact, according to the Council of Economic Advisors, the third quarter of 2010 saw more than $33 billion invested into clean energy, transportation and other infrastructure projects, creating a million jobs nationwide. The report claims that the stimulus has helped gross domestic product rise for five consecutive quarters, including a 2 percent uptick in the third quarter. It also claims that it "has exceeded the original goal" of creating or saving 3.5 million jobs by the end of the year (you DON’T want to see what that averages out to per job.)
Housing, the stick in the mud that ruined the party for the whole industry, will see a 27 percent rise in single-family residential construction starts in 2012, according to McGraw-Hill Construction. Those numbers aren’t as impressive as they seem, because the baseline is so low, but McGraw-Hill believes retail (and other sectors) will again follow rooftops. The company forecasts increases of 13 percent in office buildings, 25 percent in commercial structures, 13 percent in hospitality construction, and 14 percent in retail.
Reed Construction Data announced that while non-residential construction starts through October 2010 fell 1.9 percent compared to 2009, starts for October boasted a 30% improvement over September. Reed cautioned that October is a traditionally strong month for building starts, but the increase is significant nonetheless. Together, September-October starts were about at the monthly average for the 25 months since the September 2008 financial crisis.
The industry is not out of the woods yet:
• Despite encouraging news on gross domestic product, many economists believe it’s not likely to continue, and even if it is, 2 percent increases aren’t enough to spur job growth and creation.
• The expiration of stimulus funding may leave a difficult hole to fill without private investment picking up the slack.
• Overall unemployment remains stagnant at more than 9 percent, and the construction industry has been hit even harder. Most believe no mass employment relief will be felt until the last half of 2011.
• While Republican victories in the mid-term elections likely will mean lower taxes and a more business friendly environment than if the Democrats had remained in control of both houses of Congress, it also probably will mean a more laissez faire approach to the economy (i.e. no more bail outs)
The ball remains firmly in the residential sector’s court. And there is reason for optimism in the steadying of single family housing starts over the last several months and the uptick in building permits in October, including single-family housing permits rising for the first time in seven months, according to Brian C. Rezny, president of Rezny Wealth Management in Naperville, Ill.
“But there’s more to builders confidence than a good month or two for an index,” Rezny writes. “What’s at play here is a downtrend in new home inventories.”
He cites a National Association of Home Builders report that the country’s single-family housing market “finds itself in a significantly under built state,” a consequence of the major overbuilding in the early 2000s. The residential sector’s response – to stop building houses – leaves the U.S. market “one million units short of what a healthy, functioning U.S. economy would need,” Rezny said. “Once growth stabilizes this means that homebuilders will have some serious catching up to do.”
And the non-residential sectors will follow suit.
Keep praying.
Labels: Commercial, Construction Industry, Industrial