Outlook Positive for Construction Prospects
Conference Speaker Looks to the Year Ahead

By Simon Eskow

Annual spending on construction in the U.S. should grow by 6 percent by the end of 2005, a trend that should continue through the end of the following year, according to construction expert Heather Hatfield.

New York construction growth will lag behind the national rate, with a 5 percent increase across the major sectors, said Hatfield, an expert with McGraw Hill Publishers, during a presentation at the recent New York State Society of CPAs’ Construction Contractors, Accounting, Consulting and Taxation Conference.

Despite rising prices from the cost of oil and a tight construction management and labor market, factors like continued economic growth and low mortgage rates are likely to translate into more growth in the construction industry.

“By this past spring, we moved from anxiety about a soft (economic) recovery to fears about labor and oil costs,” Hatfield said. “The economy, though, seems to be absorbing the rising cost of oil, and though the job picture hasn’t been steady, it’s going in the right direction.”

Hatfield was the featured luncheon speaker at the conference, held Aug. 17 in New York City. Hatfield’s company publishes construction, architecture and engineering journals, and employs economists to forecast activity in those sectors.

Hatfield said the forecast was good news for CPAs with construction clients, although finding qualified project managers may be difficult as schools are not graduating enough students to keep up with the demand.

The picture for New York is better in the downstate area, where construction spending amounts to $16 billion annually now, while expenditures in the rest of the state are about $8 billion.

But not all construction sectors are growing evenly, and some may see a reverse of fortune in 2006. Single-family home construction, for example, has been on the rise because of extremely low mortgage rates. However, Hatfield said that rising prices and a declining population will probably soften the growth in single-family housing through the end of the year. New housing starts could even decline in 2006.

The picture is better for commercial development, with major retailers like Home Depot and Wal-Mart planning new stores for 2005 in New York state, where commercial property construction is expected to increase by 15 percent over the previous year, by the end of 2005. Prospects for commercial office space development around the country seem to be healthy, at least anecdotally, as capital funds look for new projects to invest in. A developer told Hatfield recently that there are “trillions of dollars” waiting for the right real estate investments.

Capital investments are also going into multifamily housing construction projects, which should grow by 2 percent by the end of 2005 nationwide.

Institutional construction projects, such as schools and prisons, are the area that has seen a “huge loss in momentum” this year nationally, but with bond issues in California and Texas, the picture should improve next year. Hatfield said to expect an increase in New York as well, as state construction authorities have approved and issued new bonds.

She said to also expect public works projects to increase in 2006 as the federal government disburses $286 billion for construction projects around the country, which will help New York, a state that has seen a decline in such spending in the past few years.

Hatfield told CPAs to get their New York clients to “get in the game” in institutional construction projects, especially in the health care sector where an aging population and other factors will prompt a 17 percent increase in spending.

“These trends will all continue,” Hatfield said. “The numbers are fresh and should take us into 2006.”

The Society’s Construction Contractor Committee sponsored the conference, chaired by the committee Chairman Kenneth Gardiner. The conference drew about 120 attendees, and also featured speakers on federal taxation, construction-industry insurance issues, FASB pronouncements affecting the industry, and an update on sales taxes.

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