Volume 35, Number 12, December 2000

Looking  Ahead

Economist Bill Toal Predicts Good Year for Construction Industry with Only a Slight Slump

by Penny Beverage

Bill Toal, chief economist for the Portland Cement Association, assured the construction industry that the outlook for 2001 is optimistic at this point, with a few small dips ahead. Toal spoke at FEDCON 2000, the North American Federal Construction conference, sponsored by the CMD Group of Washington, D.C. The conference was held at the National Press Club in Washington, D.C., on October 24.

"I'll try to be as brief as I can and I'll try to be gentle," warned Toal as he launched into his predictions for the new year for the crowd of nearly 200.

According to Toal, the economy is currently thriving due to the numerous advancements in technology made in the last several years. Referring to the "New Economy," he praised advanced software and information processing systems for their affects on the construction industry.

"A part of this 'New Economy' has been strong gains in labor productivity, which has risen to more than 4 percent on an annualized basis over the past year," Toal said. "Back in the 1970s and 1980s we were worried about our stagnant productivity. Now, we're making 5 to 6 percent increases in productivity with the surge of technology--that's what's driving our economy."

He continued, "The long and short of it is that unless something hits us broadside, we foresee a strong economy with moderate growth."


Construction Forecast

Toal said the conditions for construction in 2001 look favorable, considering a number of matters, including the surge of college graduates leav-
ing home for the first time seeking apartments. He added that the continual population growth in the United States is definitely a bonus for the construction industry.

In the area of residential construction, Toal said that the single-family market has thrived in the last several years. He expects that market to face a halt--or at least move to a slightly slower pace--within the next year because of increasing mortgage rates.

However, Toal said the non-residential market should benefit this year, with a steady need for more and more office buildings as companies continue to grow.

"Our forecast in the non-residential construction area is that the market will be up about 4 percent this year and flat next year because of a flattening in hotel and restaurant construction," Toal said.

According to Toal, most beneficial to the construction industry lately, and most likely next year as well, has been public works construction. He said that public works construction accounts for almost one quarter of all construction.

But, Toal said he and his colleagues have seen a decrease in the building of roads this year, and wonders if it might continue into next year.

"So far this year we've seen a dramatic slide in highway construction and I don't know the answer to why that is," he said, suggesting maybe increasing oil prices and decreasing of Department of Trans-portation staffs as possibilities.

Overall Toal expects a busy year. "Our forecast for next year is an increase, but it's like silly putty--we just keep pushing it up and up," he said.

Likewise, he added that although his predictions for all areas of construction are not as optimistic in growth as they often are, the nation really is faring well in the construction arena.

"This isn't bad considering where we're coming from, with historically high levels of construction," Toal said. "With the exception of a few, almost all of the states are having increases in our forecast."


Risky Business?

Toal ended by warning his audience that his forecast very well may be wrong, although conditions do look favorable at this point. "Any forecast I make has more risks than most," he said.

And, on a less favorable note he added that if the price of oil continues to rise, it could have an extremely adverse effect on the industry. "If oil prices continued to rise, we would probably be in some trouble," Toal said. n