In the face of uncertainty, ‘take risks,’ says economist at GlassBuild America
Nonresidential construction spending is down 63 percent from its peak, and back to 2002/2003 levels. Source: Institute for Trend Research, http://itreconomics.com.
While total new construction is down compared to 2010, Dietrich predicts the sector is growing and will end 2012 above 2011 levels. Source: Institute for Trend Research.
The United States economy is emerging, albeit slowly, from the Great Recession, and the construction industry is starting to experience sluggish growth. Glass companies looking to take advantage of the market need to take risks, said Jeff Dietrich, senior analyst, Institute for Trend Research. Dietrich spoke Sept. 12 during the sixth annual Glazing Executives Forum, part of GlassBuild America in Atlanta.
"If you are waiting for certainty, you are going to be way behind and lose the game," Dietrich said. "You're going to have to learn to embrace uncertainty—learn to take risks when risks are very real, and lead in the midst of uncertainty."
Dietrich does not see the economy falling into a double-dip recession. "That's not our forecast. We think this economy is resilient enough," he said.
Rather, he expects the economy will see mild growth for the next several years. "We'll see milder than normal growth ... but you need to be planning for it, hiring for it. If you hire a college student today, it will be three years before you'll be paying them what they're worth. This is an opportunity to hire talented people and take the time to train them," he said.
"Waiting for things to happen won't work. You need to be on the phone, be aggressive and take risks." He also recommended that companies borrow money to make investments, improve efficiencies and gain market share.
Dietrich expects the remainder of 2011 to see a slower rate of recovery, with an improved ongoing recovery in 2012. The U.S. economy will flatten in 2013, when the country may experience a mild recession, he said.
"I don't think construction is going to be hit by the 2013 recession. I think you've paid your dues and you're not going to feel it," Dietrich said. In 2015 to 2017, the economy will see solid growth, he predicted.
"Throughout all of this, there is opportunity. ... You can be profitable in every phase of the business cycle, as long as you prepare," Dietrich said.
Looking closely at the construction market, Dietrich said it has reached the bottom—down 63 percent from the peak—and is on its way up. "Construction is down in a recession era after the rest of the economy; it lags by about 14 months," he said. "But, the low has already been reached and we are on the way back up. ... We are back to 2002/2003 in terms of dollars [in construction spending], but it will be a long time before we get back to peak levels of spending."
The fastest recovering nonresidential construction sectors include: hospitals, private and public health care, education, military, federal government, power construction, manufacturing, and remodeling and retrofit in commercial projects, Dietrich reported. Multifamily projects also offer opportunities. "The recession has changed the multifamily segment. This younger generation wants to be in urban settings rather than suburban, and we're going to see change in cities around the world," he said.
Housing starts remain at the lowest level since the Great Depression. However, "we're coming out in a way,' Dietrich said. "It's going to take us a long time to get back to a million [starts]." New residential construction is currently down 3.2 percent compared to 2010. However, the segment is projected to end 2012 up 4 percent from this year.
Dietrich forecasts a similar trend for other segments of new construction, except for state and local government spending. "State and local governments are still in trouble, and will be unless we come up with a lot of money from the [Federal government]," Dietrich said. The segment is currently down 4.3 percent compared to 2010, and is projected to continue heading lower, with 2012 down 2.2 percent compared to 2011.
While total new construction remains 5.4 percent below 2010 levels, it is on the rise, projected to be up 7.8 percent in 2012, over 2011. "This is better than the alternative," Dietrich said. Commercial construction is currently down 6.2 percent from last year, but should end 2012 up 2.5 percent compared to 2011. Private health care, down 4.4 percent from 2010, should be up 7.2 percent in 2012, over 2011; and multi-retail projects, down 8.6 percent compared to 2010, should be up 4.5 percent in 2012, over 2011.
Dietrich offered two warnings, saying companies should expect to see increased taxes and fees in coming years, and should prepare for an inflationary era during the next decade, which will include increasing material prices for glass and glazing. "Producer price costs are up. You're paying 7.2 percent more for goods than you paid last year," he said.