Industry expecting a 'mixed bag' in 2005.

Even with a recovering economy, construction industry leaders are again "optimistic, but cautions" about predicting the yearly outlook for the industry.

"The construction industry heads into 2005 with a mixed bag of indicators," said Ken Simonson, chief economist, Associated General Contractors of America in his presentation at an International Council of Shopping Centers Conference earlier this month.

"Both economic activity and employment are growing, but not spectacularly. Construction activity itself appears to have stalled overall, but shows pockets of strength and revival. All of these trends are important for determining what the demand will be for construction and for the materials and labor that go into it."

The pockets of revival may be in the New York City metro area with several projects in the hopper for 2005, including rebuilding of the World Trade Center and the proposed Far West Side redevelopment by the city, and Bruce Ratner's Atlantic Yards/Nets stadium project.

According to preliminary findings for the New York Building Congress' upcoming 2005 New York City Construction Outlook, overall construction spending in 2004 is likely to come in at just over $15 billion. This level of activity, while solid, represents a decline of about seven percent from 2003.

Looking ahead, the Building Congress expects that the dip will be temporary, with construction spending and employment potentially reaching record levels over the next three years.

"New York City is poised to embark on an era of great building," said Richard Anderson, president of the NYBC in his review of 2004. "Far from the prolonged downturn many had predicted just a few short years ago, builders are thriving in nearly every sector of design, construction and real estate."

The Building Congress findings indicate residential construction reached almost 25,000 units in 2004 and should remain steady in the coming years, although continued strength in this sector could be affected if interest rates rise.

Non-residential construction in 2004 continued a modest decline that started in response to the events of September 11, 2001. However, the Building Congress predicts a significant rise in this sector, led by a slowly recovering economy and the commencement of several major office construction projects in 2005.

"New York City is bursting with new construction opportunities in 2005," said Lou Coletti, president of the Building Trade Employers' Association. "In the new year, we can look forward to a number of projects that will help to shape the city's skyline, bringing the promise of job creation, new tax revenue and economic development for the city and state."

Nationally, CIT Equipment Finance, a unit of CIT Group Inc. in its 29th annual CIT Construction Industry Forecast indicates in 2005 that United States construction industry leaders are predicting a strong year ahead as their confidence hit an all-time high. The CIT 2005 Construction Industry Forecast's overall optimism quotient rose six points--from last year's 103 to 109--the highest-ever rating since the OQ was developed in 1995. "In last year's CIT Construction Industry Forecast, U.S. construction industry executives told us that they could see the light at the end of the tunnel after several years of economic uncertainty," said Roy Keller, president of CIT Equipment Finance. "This year, it looks like the industry has made its way out of the tunnel altogether and the forecast is brighter than at any time in the last decade."

Factors that will continue to affect the industry are material and labor costs, which have risen significantly in 2004. The producer price index (PPI) for construction materials climbed almost 11% from October 2003 to October 2004, more than double the 4.4% increase in the PPI for finished goods. But the figures are dramatically worse for some materials. Diesel fuel has jumped 65%. Steel mill products have risen 48%. Asphalt was up 18%. Ready-mixed concrete, which barely budged in price for three years, has gone up 8% in the past 12 months, with seven consecutive monthly increases, according to Simonson.

The short-term outlook for steel is ominous. Scrap iron and steel, the key ingredient for steel from mini-mills, was up 91% between October 2003 and October 2004. Further increases in finished steel products appear likely in the next few months. Simonson predicts over the longer term, relief is on the way for steel costs.