Construction Economy

If you check out the recent article on construction economy in the KC area in Ingram's magazine you will note a slight increase in commercial construction in the area is predicted by the author. Good news for KC!

Economy is still good for construction?

Economist says commercial construction continues to grow nationally

St. Louis Business Journal - by Chris Moon Wichita Business Journal

A national construction expert says commercial construction continues to thrive despite turmoil among home builders.

Ken Simonson, chief economist for the Associated General Contractors of America, said Friday that recent employment data from the U.S. Bureau of Labor and Statistics show jobs in heavy construction trades actually have grown during the past year.

"Nonresidential construction is still boosting the economy, despite the home-building meltdown," Simonson said in a statement.

BLS data indicates overall construction employment nationally dropped by 14,000 in September and is 1.5 percent lower than levels a year ago. But those same figures show jobs in nonresidential building, specialty trades and heavy and civil engineering have grown by 42,000 jobs, or 1 percent, during the past year.

Simonson says in the future, he expects a reduction in office, retail and hotel construction but additional work in the energy, power and hospital sectors.

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Want more residential construction opportunities? Think GREEN!

While I do not profile residential construction matters, one article of note is worth reading (Thanks to Kate Whitby of Spencer Fane):

NBN Online for the week of April 16, 2007

In a Down Housing Market, Green Demand Exceeds Supply

In a marketplace that continues to run cool as builders work down their unsold inventories of homes, green building and remodeling is one corner of the marketplace where demand is riding higher than the available supply, participants in an NAHB teleconference said on April 16.

Recent surveys by McGraw-Hill Construction among green home buyers and home owners who have undertaken remodeling jobs find a strong sentiment among consumers that there “are not enough green builders out there and demand is exceeding the homes available,” with the shortfall particularly pronounced in the East, said Harvey Bernstein, the company’s vice president of industry analytics, alliances and strategic initiatives.

Bernstein added that green housing is a differentiator from traditional homes and “something still in demand” even during the current market correction.

Energy-efficiency is now a primary concern of housing consumers, said Gopal Ahluwalia, NAHB’s vice president of research, as the cost of energy remains high and prospective buyers are worried about how they will pay to heat and cool homes that are 50% larger than 30 years ago and growing in volume with the popularity of high ceilings.

Environmental concerns are prompting a small majority of consumers to consider the alternative of green building, Ahluwalia said, but survey and focus group research makes it “loud and clear” that buyers are willing to spend a little bit more to improve energy efficiency because this is an issue that “hits the pocketbook.”

For Michael Strong, CGR, CAPS whose firm, Brothers Strong, Inc. has been remodeling homes in the Houston area for 17 years, energy efficiency has become a given and a baseline that his customers have come to expect, and he is expanding his business by educating home owners about the health benefits of building green.

Green remodeling jobs that promote a healthier home include properly sized and vented exhaust fans, the addition of fans to the laundry room, zero or low-VOC paint and the use of formaldehyde-free carpet and plywood, “getting obnoxious chemicals out of the home,” he said.

Jobs emphasizing better energy efficiency include dual-flush toilets, tankless water heaters, HVAC systems with at least a 17 SEER rating, furnaces with a 90+ rating, fluorescent lighting and Energy Star-rated appliances, Strong said. On top of those products come lower operating costs from sealing ducts with mastic, not tape; radiant barrier decking; double-pane, low-E windows; properly sealed homes; balanced attic air intake; and exhaust and spray foam insulation.

And lower maintenance is provided by fiber cement siding, 40-year shingles, engineered wood framing and physical termite barriers.

Home Owners Are Getting It

The good news, he said, is that “home owners are getting it. Typically, in the old days when we talked about energy efficiency, people thought about one system at a time and would have thought about replacing all of the windows or all the insulation,” he said. “Now they are willing to look at it one room at a time. When they are remodeling the kitchen, they want to make it as energy-efficient as possible and also as healthy as possible. They don’t worry that they can’t affect change in the rest of the house.”

When dealing with clients on green building projects, Strong advised against talking down to them or overloading them with technical data. “Keep it simple and avoid lots of ‘geek talk.’” Consumers, he added, “know more about energy efficiency than about ‘healthy homes,’ but they are starving for that information and they are open to it.”

Like remodelers, home owners are more likely to find information on green products from manufacturers than retailers or trade contractors.

According to McGraw Hill Construction, prospective buyers are hearing about green homes most by word of mouth (28%) and from television shows (20%), said Bernstein. Although builders see themselves leading this innovative market, only 10% of the consumers surveyed cited builders as an information source.

Green Home Buyer Satisfaction Is ‘Phenomenal’

Word-of-mouth communication is being driven to a great extent by a “phenomenal” 85% satisfaction level among green home buyers, Bernstein said.

One hundred percent of the green home buyers surveyed by McGraw Hill identified lower utility, maintenance and operating costs as an incentive for purchasing a green home, he said, and as a motivating factor, energy costs were more important in the East than in other regions of the country.

Home buyers are also willing to pay more for a home with certain green features, Bernstein said, or $17,000, to be exact, over an average-costing $292,000 home.

Of the home owners who had signed up for remodeling jobs, 39% used a green product, he said, and of those, almost half (47%) involved new or replacement windows, followed by HVAC (44%).

While there are currently no available figures on how much green might increase the resale value of a home, Bernstein said, based on evidence in the commercial market, “green homes will have higher resale values going forward.” Green in a commercial building can increase its value by 7.5%, increase its occupancy by 3.5% and decrease its operating costs by 8% to 9%, he said.

While green may look like the way to go up in a down market, Strong cautioned that “taking advantage of green opportunity is not something you do overnight. It requires an across-the-board-assessment of your building practices.”

Going green involves a long-term, strategic decision, Strong said, and involves “examining products through a new lens” and “educating your trade partners.”

“You have an opportunity to diversify in a down market,” he said, “but you can’t change it in 90 days. It will take a while to gear up.”

Construction Economy

Well....I am getting multiple stories on the status of the construction economy. Dr. Chris Kuehl tells me that the recent fears regarding the turning of the economy is based upon the continuing decline in the housing sector yet while 100,000 jobs have been lost in the residential sector, 200,000 have been created in the commercial sector. So can this impact the commercial sector?

Additional fears concerning general unemployment still exist..yet one can not find enough folks to work in the commercial sector.

The third issue relates to inflationary trends...well can we control this factor?

If the commercial sector is surviving two out of the three criteria, doesn't that mean that the construction economists are overreacting?

Construction Ideas

From my friend Kate Whitby of Spencer Fane comes this article:

"Brownfields Tax Incentive Extended and Expanded

The Tax Relief and Health Care Act of 2006, signed into law by President Bush on December 20, 2006, includes an extension and expansion of the Brownfields Tax Incentive.  The Act renews the Brownfields tax incentive effective January 1, 2006 and extends it until December 31, 2007. This allows companies to deduct cleanup costs in the year incurred instead of requiring the deduction to be capitalized and spread out over time.  It also expands the incentive's scope to include expenses of cleaning up petroleum products, i.e., crude oil, crude oil condensates, and gasoline.  Such expenses previously had been ineligible.  Under the Act, the petroleum products incentive is only available for expenditures incurred between January 1, 2006 to December 31, 2007.

Entities seeking to take advantage of the incentive still must obtain a certification of eligibility from their state cleanup program.

EPA is currently updating guidelines and other information resources to reflect changes made by the new law.  Information on the Brownfields tax incentive, including state cleanup program contacts, is available at http://www.epa.gov/brownfields/bftaxinc.htm."

What will it take to get local developers to look closer at this type of opportunity? Or is it a feature that is only of interest to the investors of the big industrialized east coast metropolitan areas?

Ecnomic Forecasts

Last economic from Dr. Chris Kuehl of Armada Intelligence indicates that manufacturing and consumer spending is unexpectedly "up". With an original index assessment of 49.3 for January and 52.3 for February the economists are welcoming this good news after last week's stock market "crumble".

Should we expect construction starts will increase based upon this information?

Construction Economy update

Economists are again foretelling of enormous possibilities in the construction sector. Dr. Chris Kuehl indicates the average growth rates are as follows: hotel and entertainment facilities are supposedly growing at a 52% rate, health care at 52%, factories at 20%, office buildings at 18% while at the same time there are major shortages of fire stations and police facilities.

This might be the most telling point......180,000 employees have been added to the commercial construction sector over the last year!

"It's the economy, stupid!"

'member that line from the '92 elections courtesy of James Carville? Well I have been sharing with you the economic outlook for '07 courtesy of Dr. Chris Kuehl. Now an update...he tells me the industrial output is causing some concerns among analysts while home builders are becoming optimistic about the coming months. The first is a cause for financial concern while the later appears to be "puffing and wishing".

"Home Depot Looks Ready to Abandon Contractor Strategy"

According to my friends at Armada Intelligence Home Depot division known as HD Supply appears to be heading in the wrong direction it seeking a large share of the commercial contractor market while Lowes is succeeding, directing itself toward the retail sector. According to Armada, while HD lost its market share to specialists Lowes offered training classes, hired more women to work their stores and took advantage of the "self help" home improvement crowd to boost its sales in the retail sector.

It is tough, tough, tough to work in the commercial construction world and perhaps Home Depot is the latest to discover this..............

2007 Economy

From our resident economist Dr. Chris Kuehl who was suggesting late last year that the 2007 economy was on the "down swing" :

"The majority of economic analysts seem to have concluded that the US has not only achieved its "soft landing" but that the process of recovery is already underway. The latest round of data release have been consistently surprising and show a very definite upward trend-....."