Winter of Discontent

By Ty Gable

We are now deep into the 2010 economic forecasting season, and we are scouring the data for the sectors of the construction industry that are most relevant to precasters.

Last year at this time we knew 2009 was going to be a down year, and we continued to lower our expectations throughout the year as it became apparent that we were still  looking for the bottom of the recession.

It now appears that the overall construction economy will dive between 18 percent and 25 percent in 2009. It’s shaping up to be a long, hard winter. The good news, if you can call it that, is that we should recover some of our 2009 loss later in 2010 as we start a long, slow recovery. It looks like the three-year decline in construction will bottom out, but we will likely be bumping around on the bottom for the next 12 to 15 months.

While there is a lot of uncertainty out there, one thing is crystal clear: We will not see construction levels matching the high water mark of 2005-2006 for a long time. What’s that mean for the individual precaster trying to plan for 2010 and beyond? Because the precast concrete industry is so diverse, the picture looks mixed – as usual – in the months ahead. It’s going to be a long, hard slog, and as we enter 2010, we’re only cautiously optimistic. Here are five realities to consider as we look ahead:

• The construction economy remains in a precarious position. Housing has bottomed out and appears to be inching upward again from a very low point. That’s good news, but there is trouble roiling in the commercial construction sector with losses on commercial loans expected to reach $30 billion in 2009. That puts pressure on local and regional banks, where much of the commercial debt is financed. Continued difficulties in refinancing commercial loans will keep this sector from joining any recovery in 2010.

• Projects that rely on state matching funds will be affected by the largest decline in state tax receipts in 50 years. Increasing unemployment and declining consumer spending will likely depress state tax receipts for the next few years. You may hear that the recession is over, but many state budgets will be in trouble until unemployment retreats – and that may not happen until 2011.

• Stimulus spending will have more of a positive impact for precasters in 2010 than it did in 2009, when much of the early transportation and infrastructure spending went to blacktopping projects that could get rolling right away. Longer-term projects will come online in 2010. The U.S. Army Corps of Engineers, for example, has allocated only $2 billion of its $8 billion in stimulus funding. Most of the remaining funds will be designated next year.

• The reauthorization of a transportation bill and the ongoing funding of highway projects through the gas tax trust fund are unknowns at this time. These are key funding devices for precasters that rely on transportation work, but with health care and climate legislation occupying the U.S. Congress, transportation-related legislation will likely be dealt with on a piecemeal basis. Major roads projects, as a result, may stay on the shelf in the face of uncertainty.

• Sustainability is the key word in any government-related construction. LEED Silver is the minimum standard, and companies that can show project owners and designers how to earn LEED points with precast will find the most success in this new building environment. Now’s the time to position yourself as the local expert on sustainable building with precast.

Better times are ahead, but we’re not there yet. The keys to survival in this winter of discontent are to continue to look for new markets and find ways to expand your  product offerings; know and control your costs; and stay close to your customers. The companies that use this time wisely will reap the benefits when recovery takes hold.