Guest Column: Building sector growth hinges on credit market

Placement of graduating construction management majors in the last few years seems to be a fairly accurate indicator of the industry's expectations for 2009.

Placement for Missouri State University's December construction management graduates indicates a great deal of uncertainty, and a few silver linings, for the construction industry in 2009 and beyond.

Residential building

The question for the residential construction sector in southwest Missouri is whether we have hit the bottom.

With a record 927 foreclosures on the books through November in Greene County and considerable available inventory, the residential sector still lacks appreciable positive news to indicate much will change in 2009. The silver lining for the residential market is low interest rates, hovering around 5 percent in recent weeks.

Southwest Missouri should lead many portions of the country rebounding from the housing mess. Such a rebound could happen in late 2009 but is more likely for 2010.

While MSU's construction management graduate placement program hasn't placed anyone in the residential sector for almost three years, several of Missouri's largest residential builders have indicated a strong interest in interns as they gear up for a 2010 upswing.

Commercial construction

The commercial sector has seen a 20-year run marked by significant growth throughout southwest Missouri. There are signs this run could end in 2009 or 2010, but factors such as a loosening of the tight credit market combined with low interest rates could extend it. It is unlikely the commercial sector will take the hit the residential market has seen, but a downturn is likely. In 2008, U.S. retail construction has seen a 30 percent decrease, and companies focusing on retail construction have already seen the downturn.

McGraw Hill Construction, in its yearly construction forecast, makes bleak predictions for 2009 with double-digit decreases in commercial and manufacturing buildings.

As a result of a number of large construction projects and, until recently, a strong outlook for the commercial sector in southwest Missouri, most commercial companies are looking at a backlog that will carry them through 2009.

Still, several projects planned for 2009 have been held back and are in "wait-and-see" status. Should the credit markets loosen up during 2009, many of these projects will come to fruition. As a longer-term indicator, many local design firms have recently seen a significant drop in work, which could be an ominous sign for building in 2010.

The great unknown is the tight credit market, and unless this changes, commercial building starts will decrease in 2009. New MSU graduates looking for employment in commercial construction are still finding opportunities outside of southwest Missouri. Placement of construction management graduates in the local commercial sector indicates a significant pool of employees has been built up during the recent construction boom, and the local industry is nervous about the upcoming year.

Growth potential

The public works and utilities sector faces the greatest uncertainty moving forward. Given an almost certain downturn in other sectors, however, this sector has the greatest potential for stability or growth in 2009.

Given what we know today, public works spending nationwide is projected to decrease slightly with state and local governments showing spending restraint in the face of uncertainty. Many departments of transportation are cutting back as the threat of losing significant chunks of federal highway funding in 2010 looms.

Another factor impacting transportation funding is increasing material costs coupled with decreasing gas tax revenues as a result of declining gas consumption.

The great unknown is the plan of President-elect Barack Obama's administration to invest in infrastructure. A significant investment could have a profound impact on public works and utilities.

Missouri's public works and utilities spending in 2009 should be stable, which - in this economy - is great news. Graduates looking for jobs in this sector are still finding multiple job offers both nationally and locally.

For the construction industry, 2008 has been a banner year for all but the residential sector. The upcoming year appears to be filled with challenges related to credit markets. Southwest Missouri will fare better than much of the country with a greater level of uncertainty in 2010 as commercial backlogs potentially evaporate without the loosening of credit. Ultimately, all sectors are dependent upon a speedy resolution to the mortgage crisis.

The construction industry has demonstrated how critical it is to this nation's economy. Infrastructure investment and easing of the credit markets will be the key to avoiding a long and deep recession.

Shawn Strong, Ph.D., is head of Missouri State University's department of technology and construction management. He may be reached at shawnstrong@missouristate.edu.