Who says times are tough? What the statistics tell us

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Special Report by Oliver Witte

Wealthy industrialist Andrew Carnegie (1835-1919) is supposed to have said, “All times are good times if you know what to do with them.” I can’t confirm the author, but any rural builder who survived the last three years can confirm the statement. Hard times do sharpen survival skills.

 

OK, so times are tough for rural builders. How tough are they? I checked some of the leading data mills and found some good news amid the bad. I’ll start with the bad on the theory that bad news drives out good news. As budgets for next year are being developed, it’s helpful to get some perspective on the state of the broad construction market.

Ideally, there should be a single, up-to-date source for commercial, institutional and industrial building construction in rural America. There used to be such a source but it fell victim to a previous round of budget-cuts.

Perhaps the best place to start is what the Agriculture Department defines as rural America. Its website has a map that distinguishes between counties that it considers “metropolitan” and those it considers “nonmetropolitan.”

Source: Prepared by ERS using data from the Census Bureau

Spend some time browsing in what the Ag Department calls its “briefing room.” It contains a trove of information likely to be useful to anyone working in rural America.

The broadest picture of business done in the United States is called the Gross Domestic Product, computed by the Bureau of Economic Analysis in the Commerce Department. It includes the total value of all construction for the United States and for metro areas. A quick subtraction shows the gross domestic product for all construction in nonmetro areas of the United States (Figure 2).

 

Source: http://www.bea.gov/regional/index.htm

 

2008 broke a long string of increases and last year continued the decline, although the total still beat the first three years of the decade.

The trouble with the BEA figures is that they include marginally relevant categories such as highway and heavy sewer and water, residential and government construction. For a breakout of private non-residential construction, we go to the Census Bureau (Figure 3).

Source: http://www.census.gov/const/C30/private.pdf

 

This chart is a little more encouraging because it excludes residential construction, which almost collapsed following 2008 amid a variety of scandals. The helpful Census Bureau also publishes a breakdown of its component construction types. Here’s what went into the total for 2010 (Figure 4).

Source: http://www.census.gov/const/C30/private.pdf

Definitions for each category are provided on the website. Lodging, for example, means mostly hotels and motels, not single-single houses or apartments.

If your business is primarily agricultural, including barns and related structures, you might want to drill down another level to get a category called farm building (Figure 5).

 

Source: http://www.census.gov/const/C30/private.pdf

Now the picture is starting to look a little brighter. Farm building suffered along with the rest of the economy in the recession from December 2007 to June or July of 2009, but it appears to have recovered most of its momentum last year. Of course, one year is too soon to break out the corn likker and celebrate but it is a hopeful sign.

The Agriculture Department provides a more detailed look at farm construction. The following chart moderates the enthusiasm generated by the previous chart because it includes only barns and related structures and dwellings. The best year for barn building in the last decade was 2008, but 2010 was not the worst. That distinction goes to 2001, which was 40 percent below 2008 (Figure 6).

Source: http://www.ers.usda.gov/data/farmincome/expense/capexpnd.xls

The Web address for the previous chart provides considerably more information about capital spending for agricultural purposes. For example, it includes land improvements such as irrigation equipment, dams, ponds and fences; motor vehicles, such as tractors and trucks; and machinery and equipment. 2010 was the second best year on record for spending on tractors — only slightly less than 2008. Sales of all motor vehicles for farm use was up 8 percent last year from the previous year. Machinery and equipment sales did even better, up 12 percent last year, although still down from 2008, which was the best year on record for this category.

OK, so a historical perspective is fine, but what about the future? Federal officials are loath to make predictions. Even the most prominent private collector of construction data — McGraw-Hill — is making public only its forecast for the rest of this year and for combined public and private.

However, the figures do break out commercial, industrial and institutional buildings in non-metropolitan areas. The good news is that McGraw-Hill expects a slight improvement in that category, led by the industrial sector, which includes manufacturing buildings, warehouses and laboratories, at plus 88 percent. Construction of institutional buildings, such as education, dorms, health facilities, religious buildings and amusement parks, will decline but only slightly – about 6 percent. Commercial building, which it defines as including stores and offices, will be off 13 percent. In graphic form, it looks like this (Figure 7).

 

Source: McGraw-Hill

The National Frame Building Association does an excellent job of updating its members on current economic and business news. Its newsletter digests data from McGraw-Hill, Wells Fargo Financial and other sources such as national newspapers and websites. The June newsletter, for example, reported a forecast by financial services giant Standard & Poor’s, a division of McGraw-Hill, that housing starts would close this year up 4.6 percent and surge by 60 percent next year. I like the S&P forecast better than the McGraw-Hill forecast but a 60 percent increase from a low number (seasonally adjusted annual rate of about 600,000 housing starts in July) still has a way to go before getting back to the 1.8 million level as it was in 2006.

A cautionary remark by a speaker at a panel discussion on survival skills during a severe recession many years ago comes to mind. At a question period following the last speaker, a man with a deep Southern accent strode to the microphone and said, “I’m just a small builder from a small town in Georgia. On the side I run a few beef cattle. My questions are: Will I survive? And how?” One of the panelists responded tersely, “Yes, and in beef cattle.” RB

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