Shutdown is Over but Uncertainty Remains

October 17th, 2013 by DWM Magazine

Though the government is back up and running the problems are far from over and its effect on the housing and construction markets, and overall economy, remains to be seen. That was the consensus among panelists in today’s Economic Webcast: The 2014 Outlook: Emerging Opportunities for Construction, sponsored by Reed Construction Data.

Dr. Bernard Markstein, chief economist forReed Construction Data, may have said it best when stating that thought the shutdown is over there are still risks to the economy.

“It may take a while to sort out its effects,” he said. “It [shutdown] has done a lot of damage along the way. What has passed is a short term solution and we have not solved anything. We have kicked the can down the road.”

He added that the government now has three months to thrash out a budget and hopefully raise the debt ceiling.

“So this could all happen again,” said Markstein. “Being somewhat optimistic I hope that doesn’t happen.”

Housing Trends

Other effects of the shutdown include a lag in tracking of construction numbers such as housing.

Kermit Baker, chief economist, American Institute of Architects, said recent numbers have been disappointing but it’s hard to get a full picture.

“We have to wait for government to catch up to get housing numbers for September,” he pointed out.

And while housing had been on the rebound, Markstein said, “Washington has created uncertainty,” and that includes housing. “It’s expanding but from a low level,” he said. “Lenders have been loosening standards but credit is still tight.”

“The housing market recovery that had been strong has taken a pause though hopefully it is brief,” said Baker.

Ken Simonson, chief economist for the Associated General Contractors of America, echoed recent forecasts that speak to the continued health and growth of the multifamily market, but added, “it’s at the expense of single-family … Single family will top out at a lower level than the past decade.”

Commercial Construction

Baker pointed to the Architectural Billing Index as a sign that a sustainable recovery in nonresidential design activity.

“Commercial/industrial markets are showing the strongest growth and poised for more growth,” he said. “Institutional has been the most stable with 13 straight months of modest gains.”

Simonson predicts growth in the lodging market, while he said hospital and office construction will remain flat.

“There will be a big drop in construction of stand-alone stores and shopping centers,” he said. “I don’t see a comeback any time soon in overall retail spending.”

But back to some good news, Baker added that firms are slowly starting to build up their design backlogs.

His outlook for overall construction activity? “I predict low single-digit growth this year for commercial construction,” said Baker, but there is a caveat. “This doesn’t factor in the government shutdown and debt ceiling debates.”

Simonson said overall construction spending is up 19 percent but some of that includes price increases. Regarding labor and employment, he said total hours are up ten percent reflecting a modest productivity improvement.

“But this growth is hours per worker and the question is how long that can continue,” he questioned.

Overall forecasts aside, it all comes back to the recent government uncertainty.

“I am looking for small growth but government is creating uncertainty for businesses,” said Simonson.

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