February 5, 2008


Non-Residential US Construction Seen Up In '08-AIA
NEW YORK - Spending on U.S. non-residential construction projects will rise at a slower rate this year, as a credit crunch and a housing downturn stall expansion in the sector, an architects' trade group said on Wednesday.

Non-residential construction activity is seen rising 0.7 percent in 2008 and declining by 0.9 percent the following year, the American Institute of Architects (AIA) said in its twice-yearly industry forecast. That compares with an estimated 7.5 percent increase recorded in the year just ended. "At present, this is shaping up as a very mild downturn," AIA Chief Economist Kermit Baker said, adding that the long-range forecast is likely to change depending on the U.S. economy and the volatile prices of raw materials used in construction.

In past economic cycles, a typical swing between the top and bottom of the cycle was 10 percent to 15 percent, while the peak-to-trough swing this time is likely to be much smaller. That's because this time there was less speculative building during the sector's upturn, Baker said.

Average forecasts were more optimistic six months ago, when 3 percent growth was expected this year. Since then, signs of an economic slowdown and concerns about the effects of a credit crunch have tempered optimism, but not enough to suggest an imminent contraction.

"It seems like it's stabilized in terms of the toll it's taken on projects," Baker said of the credit crunch.

Construction of office buildings and hotels is expected to rise this year, while retail facility building is seen down, reflecting a soft outlook for U.S. consumer spending. Outlays on industrial facilities are also projected to be lower.

Office, retail and hotel segments are all seen lower in 2009, with the industrial segment up slightly. Estimates for both years range widely, since any number of variables could make the difference between an up and a down year, including raw materials prices.

Construction material prices are seen rising by 4 percent to 5 percent this year, faster than overall inflation. Higher prices for iron and steel scrap, gravel, and structural metal are being partly offset by falling prices for products like gypsum -- used for drywall and plaster -- as well as insulation and lumber, the AIA said.

Source: Reuters, January 16, 2008

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