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Construction Activity A Mixed Bag In Gulf Coast States

We leave our autumn of turmoil with hopes turned toward a new year. Many sources say that the general economy will continue its downward spiral for some months yet. Unemployment figures continue to rise as the result of business failures and layoffs. Contractors, who last year were looking for employees, are having to thin their ranks this year.

December 15, 2008

We leave our autumn of turmoil with hopes turned toward a new year. Many sources say that the general economy will continue its downward spiral for some months yet. Unemployment figures continue to rise as the result of business failures and layoffs.

Contractors, who last year were looking for employees, are having to thin their ranks this year. Laying off employees is a gut-wrenching decision, but sometimes it is the only solution to a business' survival.

Equipment dealerships are reporting that it is their parts departments and field service that are keeping them afloat as fewer new machines are headed out the door.

“Nonresidential construction is on the verge of a potentially long slide,” warned Ken Simonson, chief economist for The Associated General Contractors of America (AGC), following reports from the Census Bureau on construction spending in September and the National Association for Business Economics (NABE) on third-quarter and expected activity.

“The Census figures show nonresidential spending eked out a gain in September of 0.1 percent,” Simonson noted. “But private nonresidential spending was down nearly 1 percent from its high-water mark in June, while public spending tumbled 1.3 percent in September alone.

“Contractors have been reporting that developers put lots of projects on hold because of the credit freeze and weakening demand for stores, offices and other facilities,” Simonson observed. “Meanwhile, states had to postpone construction bond issues or defer budgeted projects in order to meet balanced-budget mandates.”

There are exceptions to every rule. Simonson's prediction is generalized for the overall U.S.; there are pockets of activity that promise to remain strong. Look at growth areas. Dallas, Houston and Austin filled the top three spots on M/PF YieldStar's list of U.S. cities with the most apartments under construction. Northerners are still moving to the southwest in droves. They need places to live, get health care, send their children to school, etc. Health care and school construction will continue to be strong.

The Gulf Coast from Texas to Florida is still cleaning up and rebuilding from hurricanes Katrina and Rita in 2005 and now Gustav and Ike in 2008. Recovery could take a decade. On the surface, this sounds like a steady supply of construction work. On the public side it is, as the federal government has provided money to help these areas rebuild their infrastructure. On the private side, the recession will have even worse effects in hurricane-devastated areas. Property insurance along the Gulf Coast has become almost nonexistent; so have loans to small businesses and homeowners. They can barely pay to clean up their property, let alone rebuild until the availability of small business loans is restored.

The Fayetteville Shale gas field has begun to spark construction in northern Arkansas, but the falling prices of oil and natural gas will no doubt slow down new development there until oil prices rise again.

Foreclosures As A Sign

According to RealtyTrac, a foreclosure research firm, Louisiana and Mississippi have some of the lowest foreclosure rates in the nation. Neither are Arkansas and Oklahoma in bad shape. Of our coverage states in RealtyTrac's list of 100 metropolitan areas with the most foreclosures, Tennessee has the highest foreclosure rates, with Memphis ranked 25th in highest foreclosure percentages with Tulsa trailing closely at 53. Little Rock is at 62, OKC is at 66 and Baton Rouge is at 96. We aren't even close to the pain being felt in Florida, California, Arizona, and Nevada.

My two cents: Be ready to remodel all those big box stores going out of business once investment dollars begin to flow again.

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