Gilbane expects construction to increase in 2013 after early downturn

AFTER A DOWNTURN in construction spending in early 2013, Gilbane Building Co.'s annual winter construction-industry economic report predicts an uptick in spending for the rest of the year.
Posted 12/5/12

PROVIDENCE – In its annual winter 2012 construction-industry economic report, Gilbane Building Co. predicted an increase in construction spending over last year, but cautioned about an expected downturn in early 2013.

The report, Construction Economics - Market Conditions in Construction, is based on an array of economic data, construction starts and material cost trends.

“Supported by overall positive growth trends for year 2013, I expect margins and overall escalation to climb more than we’ve seen in five years, particularly in the rapidly expanding residential side of construction,” report author Ed Zarenski, a 40-year veteran of the construction industry, said in prepared remarks.

According to the report, margins increased between 1 and 2 percent year over year for 2012. “Once 2013 growth in nonresidential work picks up and both residential and nonresidential are active, the industry may begin to see some labor shortages and productivity losses, which will push up escalation,” said the report.

Some economic factors were still negatively impacting the industry. The Architectural Billings Index, which predicts activity nine to 12 months in the future, indicates a drop in nonresidential spending potentially from February through July 2013.

The Gilbane report also points out that the public construction spending rate has dropped 5 percent since the same period in 2011 and will finish 2012 roughly 12 percent below the 2009 peak. Public construction spending is expected to drop further in 2013 for the fourth consecutive year.

On the positive side, contractors’ building costs “charged” in 2012 are above labor and material costs increases, which signaled a movement toward recovery to more normalized margins, according to Gilbane.

Also, the nine states that account for 50 percent of all construction jobs lost 137,000 jobs between September 2011 and January 2012. Twelve months later, that same group showed a gain of 32,000 jobs since September 2011, a turnaround increase of 169,000 jobs in eight months.

Overall, the report expects construction spending in 2013 to increase 5 percent and residential spending to increase 11 percent.

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