IndustryOutlook

Get Ready for Another Year of Modest Construction Spending

New construction starts in February dropped 7 percent from the previous month at a seasonally adjusted annual rate of $376.0 billion, according to McGraw-Hill Construction. Additionally, nonresidential building, at $127.6 billion (annual rate), dropped 7 percent in February.

The report only reinforces what the industry has been feeling for a while and what the Architecture Billings Index has already foretold, according to Oliver Stepe, senior vice president at YKK AP in Austell, Ga. “Specifically, overall we should be prepared for another modest year of construction spending or possibly even another downturn,” he says.

“Certainly there is some noticeable drop in the demand based on the McGraw Hill report,” says Jeff Leone, CEO of Trulite Glass & Aluminum Solutions, headquartered in Deerfield Beach, Fla. “There are a couple of important trends here: clearly, the amount of public money being spent is dropping and is non-existent in some parts of the country. However, there’s a positive trend in that the projects that are beginning are financed by private money. I think that’s encouraging and it’s a solid indicator of the future.”

All is not gloom and doom, though. “Looking deeper, you will find that some positive signs remain,” Stepe says. “The traditionally larger segments of the market, such as store and office construction, are seeing some gains, and if these sectors hold pace it will offset declines in the public building segment by far and support stronger recovery for the glass industry over the next 12 months.”

With trends toward the increasing use of higher-performance products to support energy conservation, the glass and facade industry holds a unique position in the construction market space. “By increasing the sophistication level of facade systems, we have the powerful ability to deliver a direct and immediate positive impact to the bottom line …,” says Stepe.

The other market opportunity is in refurbishing, Leone says. “There [are] lots of buildings and commercial real estate that needs to be refurbished,” he says. “There will be a lot of those. At Sun Capital, we own restaurants and many retail stores.
Those chains are starting to do things, and that’s an important indicator. We’re seeing some store refurbishment; some of the retail guys are starting to put new stores in and starting to spend money. That’s encouraging.”

USG
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