Economic Forecasts for 2010

"I try to be a forthright economist. That means, I try to be right at least a forth of the time." So said George Christie, the former chief economist for McGraw Hill. Will his successor be as reliable?

McGraw Hill's Construction Outlook for 2010, prepared in October 2009, contains the following observations:

New construction starts have seen a 25% decline in 2009 compared to the previous year, continuing a downward trend of 13% in 2008 and 7% in 2007. Whereas the earlier retrenchment was led by single family housing, in 2009 substantial weakness was reported for multifamily housing and commercial buildings. Even the typically more resilient structure types, educational buildings and healthcare facilities, have lost considerable momentum this year.

Bright Spots:

■ The $787 billion federal stimulus act contains about $130 billion for construction.

■ The financial sector is stabilizing,


■ Employment will stay weak, with implications for commercial building sector as it relates to such market fundamentals as occupancies and rents.

■ Bank lending standards will stay tight.

■ State and local finances won’t be turning around soon, meaning deferral of construction.


■ The overall level of construction starts in 2010 will climb 11% to $466.2 billion, helped by improvement for housing from extremely low levels and a more sustained boost to public works coming from the stimulus funding.

■ Single family housing will advance 32% in dollars. While the percentage
gain is impressive, the level of activity remains weak – about the same as 2008, and more than 65% below the peak activity at mid-decade.

■ Multifamily housing will improve 16% in dollars after the steep reductions in 2008 and 2009. The 14% gain to 160,000 units still leaves activity about even with the bottom of the early 1990s recession.

■ Commercial buildings will retreat an additional 4% in dollars, after the steep 43% drop in 2009.

■ The institutional building market in 2010 will edge up 1% in dollar terms, helped by a growing amount of energy-efficiency upgrades to federal buildings, as well as continued strength for military buildings. The educational building category will see further declines, but healthcare facilities should stabilize after this year’s sharp correction.

■ Manufacturing buildings will drop 14% in dollars, hampered by the substantial amount of slack manufacturing capacity. Some cushioning may come from production facilities related to alternative energy.

■ Public works construction should rise 14%, given more wide-ranging strength across the various project types. Highways and bridges will maintain their upward track, to be joined more fully in 2010 by sewers and water supply projects, as well as mass transit work.

■ Electric utilities will slip 3%. Alternative power projects, such as wind and
solar, are assuming a greater share of the electric utility total, and these projects tend to be smaller in scope than the massive gas-fired plants of recent years.

The above has been abridged from McGraw Hill's report. The complete report can be downloaded here or obtained from your McGraw Hill representative.