CEG Industry Blog

Construction Economy Possibly Appears to Be Maybe Recovering

Pity the construction industry executive trying to guess what “possibly might” happen next.

📅   Mon October 12, 2015 - Edition
Giles Lambertson


Some sectors of construction, such as nonresidential construction, are showing signs of life but residential and infrastructure work continues to lag.
Some sectors of construction, such as nonresidential construction, are showing signs of life but residential and infrastructure work continues to lag.

These are volatile times in construction economics, with soothsayers subject to whiplash as they alternately peer into the future then look back over their shoulders to see if earlier forecasts are about to bite them. In describing our post-recession economy, everyone still hides behind hedge words like “possibly” and “should,” as opposed to “definitely” and “will.”

Some sectors of construction, such as nonresidential construction, are showing signs of life but residential and infrastructure work continues to lag. In an economy struggling to record the 2% GDP, this mixed bag of progress will continue until some regulatory regimes and economic policies are overhauled. Meanwhile, prognosticators keep spinning, including a classic American Institute of Architects forecast last January:

““The overall construction industry appears to be on very solid ground for the next two years," AIA economist Kermit Baker said. Baker then trotted out a long list of caveats that explained his “appears to be” prediction: "That said, uncertainties in international economies, potential labor shortages, lower energy costs, rising interest rates and construction costs all are factors that we will be watching closely to see how they may adversely impact the marketplace.”

In other words, your guess is as good as mine.

Caterpillar guessed in 2009-10 that a commodities and construction boom was about to bring annual equipment sales of $100 billion. It opened new plants and beefed up its payroll. Then fracking cut the price of oil, China’s economy began to teeter and mining and energy sector markets imploded. Cat’s revenue this year will be less than half of that anticipated $100 billion and revenue is expected to continue to fall in 2016 for an unprecedented fourth straight year.

Now Caterpillar is cutting 10,000 employees and hunkering down. It even is delaying construction of a new headquarters building in Peoria. That may be a welcome development because it lets Cat executives see if Illinois indeed can reform its tax system.

Pity the construction industry executive trying to guess what “possibly might” happen next.