Asian flu strikes again

Look for a mixed construction market in 1999, with the industrial sector leveling off as U.S. manufacturing facilities fall below capacity.

According to the McGraw-Hill Construction Information Group's annual forecast, next year's overall construction market will see dollar volume equal to this year's level. Stronger sectors will include office properties, public works and utilities and institutional building. This will be balanced by weakness in the warehouse and industrial sectors, as well as reduced construction of single-family housing, according to the forecast.

Manufacturing as a whole started to weaken substantially this year, said Kim Kennedy, national forecast manager for F.W. Dodge, a research and analysis group within McGraw-Hill.

"The Asian crisis has caused U.S. exports of manufactured goods to fall dramatically," Kennedy said. "Also, the value of the U.S. dollar has risen relative to currencies in other countries. This has made the import of foreign goods into this country less expensive. So U.S. manufacturers can't export as much, and they can't compete domestically on price with less expensive foreign imports."

When manufacturers see a decline in new orders and shipments, they pull back on plans for expansion, Kennedy said. And while capacity utilization has been at a strong and steady 81 percent to 82 percent for some time, utilization has fallen off to 77 percent, below the point that triggers expansion, she said.

In 1998, U.S. construction of manufacturing buildings and manufacturing warehouse space totaled $11.5 billion. This will increase slightly to $11.6 billion in 1999. But with inflation and other cost increases built in, this increase will fund less square-footage of new construction in 1999 than in 1998.

This year was the construction industry's seventh straight year of expansion. This strength is expected to continue into 1999, even though no overall growth is expected.

Public works and utilities sectors are predicted to climb 7 percent, largely because of an increased level of highway and bridge projects coming from the new federal transportation bill, as well as other federal projects. Single-family housing will retreat 7 percent, which translates into a 5 percent drop in dollar terms.

Robert Murray, vice president of economic affairs for the Construction Information Group, said construction should remain strong despite a more sluggish business climate.

"The construction industry will continue to benefit from an enhancement amount of public funding, low interest rates and supportive demographics," Murray said. "Notwithstanding concerns over the economy, funding for construction projects should remain generally available, particularly from public sources." Other highlights from the forecast include:

Income properties will rise 3 percent, helped by a further increase in office construction as well as a slight gain for multifamily housing. The slower economic environment in 1999 will contribute to decreased contracting for stores, warehouses and hotels.

Manufacturing building will stabilize close to its 1998 level, having already experienced most of its retrenchment due to this year's weakened industrial sector.

Institutional building will advance 4 percent, helped by renewed growth for school construction fueled by a need for more classroom space. Public buildings will rebound in 1999 with the help of federal money for courthouse projects, while the health facilities category will stabilize after its brief correction in 1998.

Amusement-related construction will slip from its recent strength, as both sports arena and theater projects ease back from the robust levels of the past two years.

Published: October 29, 1998

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