Industry weathers storms, shows promise

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Few people follow the construction industry as closely as Norbert W. Young Jr., president of McGraw-Hill Construction, which publishes Architectural Record, Engineering News-Record and BtoB asked Young to share his insights on how the industry is responding to Hurricane Katrina and other outside forces.

BtoB: Outside influences are holding sway over the construction industry heading into 2006. What impact should marketers and suppliers expect?

Young: Like the overall economy, the construction industry has proven to be resilient in the aftermath of the hurricanes. For the U.S. as a whole, new construction starts are still forecast to rise 8% this year, a healthy rate of growth comparable to the 11% increase in 2005. However, the higher materials prices over the past year have had some dampening impact on construction activity, with projects in some cases being deferred and redesigned. As next year proceeds, prices are anticipated to settle back modestly, as the building materials sector adds to productive capacity. Market fundamentals for several commercial property types, such as hotels and offices, continue to improve, which should lead to a greater volume of construction for these structure types over the next year. Long-term interest rates are beginning to head upward, and this will include upward movement for mortgage rates. The higher cost of financing in 2006 is expected to contribute to a 5% decline for single-family housing, as it settles back from the record high achieved in 2005. Higher energy costs are expected to persist through the end of 2005 and into the early months of 2006, contributing to a moderate pickup in broader price measures.

BtoB: Do any sectors of the construction market show particular promise moving forward?

Young: The public works sector will derive support from several sources. Over the summer, Congress finally passed the multiyear federal transportation bill after a two-year delay. This will produce stronger growth for highways, bridges and mass transit. The public works sector will also receive a boost from reconstruction efforts in the Gulf of Mexico region, given the necessary initial focus on repairing the damaged infrastructures. Various estimates have been provided on the scope of the rebuilding effort, including one from the U.S. Department of Transportation that $2.5 billion will be needed to repair damaged roads and bridges in the Gulf region.

-Roger Slavens

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