MCGRAW-HILL Construction Dodge predicts that the construction industry in 2004 will once again see an offsetting pattern by major sector, with a somewhat different mix of pluses and minuses than 2003. Fortunately, the pluses will slightly outweigh the minuses.
Like others, the Dodge forecasts indicate that the fragile economic expansion seems to be gaining traction. There already has been much in the way of stimulus, including the 13 rate cuts by the Federal Reserve from 2001 to the present, plus the $350 billion tax reduction package passed by Congress in May.
Furthermore, the economy is no longer dealing with the uncertainty that was present in the period leading up to the Iraq war, corporate profits have begun to improve, and consumer spending is proceeding at a decent clip.
The Dodge report noted that total construction edged up one percent in 2003 to $506 billion. Single-family housing provided most of the upward push, as both public works and institutional building registered declines for the full year. Income property construction, the major negative during 2001 and 2002, appeared to be turning the corner. Offices and warehouses continued to retreat in 2003, but a strengthening trend emerged for stores, hotels, and multifamily housing.
After a sluggish 1.4% gain in the first quarter of 2003, the economy in the second quarter advanced 3.3%, and the next quarters were projected to see growth at about four percent. On an annual basis, economic expansion for 2003 was pegged at 2.7%, followed by a projected 4.0 percent increase in 2004, according to Dodge.
The following are the main points for the 2004 construction market according to Dodge:
-
Single-family housing will settle back from its elevated 2003, due to moderately higher mortgage rates. A two-percent drop in dollar volume is forecast, corresponding to a five-percent decline in the number of dwelling units to 1.2990 million, representing the third highest number in the past 25 years.
-
Public works will rebound about two percent, following a 10% drop in 2003.
-
Electric utilities will continue to fall from 2001's record high, dropping another 19%.
-
Income properties will climb nine percent in dollar volume and five percent in square feet. Hotels and warehouses should see double-digit growth, while the upturn for offices will be more modest given the subdued improvement expected for office employment. Stores and multifamily housing will be up slightly, maintaining the upward trend reported in 2003.
-
Institutional building will be down one percent in dollar volumes and five percent in square feet. Tight fiscal conditions for states and municipalities will contribute to a reduced pace for school construction. Healthcare facilities also will recede, given decreased capital spending by major hospital chains.
-
Manufacturing construction is expected to rise nine percent, as the capacity glut recedes alongside the strengthening economy. The level of plant construction estimated for 2004 remains very weak by recent standards, down 57% compared to the most recent peak in 1997.