ECON 2003

Experts paint unclear picture of future

By Candace Doyle

Want to know what the future holds for construction?

How about how - or if - the economy will shape up next year?

May we suggest tea leaves ... or perhaps tarot cards. Because economists and others who track the industry and its growth, or lack thereof, can't seem to reach consensus.

Who can blame them?

Think back over 2002's financial headlines. The picture that develops depends on that day's story.

Stocks are up. Stocks are down. Stocks are mixed.

The economy, at least nationally, has been much like Wisconsin's weather - in constant flux.

Yet that doesn't mean there aren't trends to watch out for. It's just that those trends are not all that clear-cut, and they're made by economists and industry observers who are not entirely confident about their predictions.

William Babcock, executive director of the American Institute of Architects Wisconsin Chapter, couldn't be more upfront about the uncertainly with which he approaches 2003.

'A bit nervous'

"Overall, I'm sitting here as executive director a little bit nervous," he said.

That skittishness, though, may be unwarranted, as he said his members don't share his reservations.

"Architectural firms remain busy," he said. "Some would like to be busier, of course. (But) firms that are looking to hire architects have a hard time finding experienced architects."

That bodes well for the industry, Babcock said, or so it would seem. And he said there is evidence that health-care construction will remain strong next year.

"That's balanced by a slowdown of school projects," he acknowledged.

Babcock said that, with a state budget deficit in the billions, the prospect of war with Iraq and a stock market that could be characterized as anything but steady, it's really anyone's guess how 2003 will shake out.

Ken Simonson's guess is that the construction industry, and the economy as a whole, will have some pitfalls next year.

"I must say I have grown increasingly pessimistic as the months have gone by here," said the economist with the Associated General Contractors of America.

Simonson said he fully expected industrial production to pick up last spring, which would have meant that architects and engineers would by now be gearing up to design new manufacturing plants. That, of course, hasn't happened.

"Now it looks as if industrial construction is getting steadily colder," he said.

Scant capital spending

"Overall, I'm sitting here as executive director a little bit nervous." William Babcock Executive Director AIA Wisconsin

Additionally, he said that a recent survey by the Business Roundtable, a Washington, D.C., association of chief executive officers of leading U.S. corporations, predicted that large companies would either keep capital spending level or lower it, a bad omen for office and industrial construction.

"If there's growth in commercial and industrial, it'll only be because they've fallen so far," he said. "There's no way to go but up."

At the same time, Simonson predicted that home building would remain a bright spot for the industry.

"All regions in the country will share in that," he said. "Demographics are favorable for household formation and home buying."

Unlike Babcock, Simonson said he was encouraged by November school building referendum results.

"Voters were very receptive to the idea of issuing bonds for construction or reconstruction," he said.

Not so, though, for highway and transit projects that were put to the electorate.

"My take on that is on the school bonds they can see the benefit to their kids very promptly," he said. "In contrast, if you're asking people to pay a higher gas tax, ... they're pretty hostile to that."

In general and nationwide, Simonson said public building might take a hit next year.

"The pain seems to be pretty widely spread," he said.

Healthy health-care outlook

But Simonson did agree with Babcock that health-care construction would remain strong next year.

"It's no secret that (health insurance) premiums are going to be rising by double-digit rates in 2003," he said. "The silver lining is where all that silver is going. They're turning around and spending it on more hospitals, doctors' offices, increasing lab and manufacturing activity. One of the growth areas for construction in 2003 is health-care construction."

Terry Ludeman, an economist with the state's Department of Workforce Development, agreed: "Hospitals will stay very strong."

He also agreed with Simonson that spending on school construction may flatten, especially considering the state's budget deficit and lingering questions about school funding in general.

"I think there will be a little hesitancy for schools in the next few months," he said. "(But) churches will continue to be strong. Of course, most of that's replacement. Wisconsin is not a growth state.

"I would think we'll continue to see expansion in eating and drinking establishments," he added. "The retail trade sector is going to continue to grow pretty rapidly. Southeastern Wisconsin, coming out of the Chicago area, will continue to boom as we've seen in the past couple of years."

Growth elsewhere

Other growth areas Ludeman noted were in the northwest quadrant of the state out of Minneapolis.

"St. Croix County has grown 8 percent in population since the last census," he said. "The Fox Valley area, particularly Appleton and Green Bay, we'll see an increase, as it has been in the past 15 years. In the Milwaukee area, we continue to see growth away from the city area."

Ludeman also agreed with Simonson about a weak outlook for industrial work.

"Basically, our manufacturing sector has really flattened out for us in Wisconsin," he said. "The wholesale trade industry and distribution of products ... that's been flat also. I don't think that'll change."

Ludeman predicted that, for the first half of 2003, construction will remain "pretty much the same" as it has been but pick up in the second half. And, overall, he said the industry has and would continue to fare well in Wisconsin.

"Construction has been one of the few industries that has not been hurt by this recessionary period," he said. "That's not to say it hasn't changed. But I'm pretty optimistic about construction."

So is Steve Stone, executive vice president of the Associated Builders and Contractors of Wisconsin.

Stone said Wisconsin has, for the most part, followed the country's lead, with the rate of new construction rising slowly last year to a 2 percent increase.

While the market didn't reach peak spending levels witnessed in 1999 and 2000, Stone said public works, residential, school and hospital construction were strong.

"The economy may have been gloomy, but at least for construction, there is a light at the end of the tunnel," he said. "Contractors are feeling cautiously optimistic that a stable economy and stronger consumer confidence will begin to appear in 2003."

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