Naked, On Fire, Running Through the City

I not sure if others have the same feeling, but whenever I make long term prognostications, I have this feeling of …. well, you know.

I know it is part of the job to look at markets and offer ideas to what the next 12 months may hold in an attempt to guide my readers toward opportunities that are out there. With the disaster known as 2008 behind us and a new year beginning, let’s take a look at what the construction industry might be facing in 2009.

Construction in practically all sectors had fallen in 2008, although there was a bright spot with a slight increase in spending in non-residential construction in the 4^th quarter. All in all the construction industry took a big hit in 2008, loosing 1 million jobs, cutting home building by 60%, lending and buying dried up  and generally the sky fell around us.

2009 may start right where 2008 had left off, yet I feel the 2^nd half of 2009 will begin a new upward cycle. There is a light at the end of the tunnel. And no it’s not a train, although, I can’t be certain.

Here are some of the areas I think will improve in 2009.

Residential construction should fair much better in ’09 as renovations begin to show life by late 1^st half and continue to grow throughout 2009. Much of the recovery will come from the historically low interest rates, tax incentives and the expanding availability of credit. Many homeowners will choose to refinance their homes to a lower interest rate and spend on home improvements instead of selling into a slow market and receive a reduced selling price.

New home construction will pick up in the 2^nd half of 2009. The greatly reduced housing starts and low new home inventories combined with the discounted pricing to encourage new home purchasing will push new home inventory levels down dramatically by 3^rd quarter 2009. Add in tax incentives, low interest rates and expanding credit to include more home buyers and the inventory of new homes could drop to record low levels. Well positioned home builders will be able to take advantage and will ramp up production in late 2009.

The area of green technologies will provide many opportunities for the construction industry. Solar panels, wind turbines and fuel cells are becoming far more prevalent and more cost effective moving many homeowners and building owners to install a supplemental power supply to save money and assuage environmental guilt. There are many incentives being offered by government to promote the use of green technology in homes and buildings, wean us off wasteful behaviors and push more efficient energy use.

Commercial building will slow further in the 1^st half of 2009 and will remain slow through the first quarter of 2010. The market cycle for commercial properties is typically longer than residential with the commercial market slow down only beginning to be felt in the middle of 2008. Commercial properties will be slower to respond to economic stimulus and thus will take longer to show improvement.

Industrial construction: roads, bridges, sewer systems, water systems, schools, electrical grid modernization and many other sectors will be robust in the 2^nd half of 2009. Much of the proposed stimulus package is focused on infrastructure rebuilding, leading to employment gains and expanding industrial building. Some manufacturing building may grow in late 2009 as well. Although, I believe this market will take more time to respond to the stimulus. Areas directly affected by the government stimulus such as renewable technology will fair better and should show improvement in late 2009.

As with all industries, construction goes in economic cycles. The companies who put in place a smart long term plan, preparing for downturns in prosperous times, will become stronger on the other side of an economic downturn. Good times never last forever, learn to efficiently employ materials and personnel limiting the urge to expand wildly and become bloated with excessive personnel and inventory. By running efficiently in prosperous times, companies will have less of a need to reduce personnel and inventory in slow economic periods, building a better, more committed work force. Economic downturns can prove to be beneficial to the strong players if they use the time to strengthen processes and adopt new technologies. The ones who survive will be stronger in the new economic cycle.

Well, there you have it, a construction industry overview for 2009. I hope my thoughts are helpful as you build your company and grow in the new year.