What will be the economic sailing conditions in 2004? After surviving a difficult 2003 season, masonry contractors may need to look at the skies to chart their course for smooth sailing next year

Masonry Construction, Nov-Dec, 2003 by Rick Yelton

The past 12 months have been difficult to understand for practically all segments of construction. It's almost as if the country's contractors have been sailing in an uncharted sea full of perils and constantly changing winds.

Trying to chart a course of success through the year has been particularly difficult for many masonry contractors. Every time it looks like fair weather sailing, a sudden gust pushes the boat off course. This year seems to have had more squalls than usual to test even the best helmsman.

So as you wipe the slate clean and start the planning process for 2004, it is advisable to keep a sailor's eye toward the economic weather forecasts.

Economic Conditions

According to most economic forecasts, 2004 sailing conditions should be relatively good. Just like the captain of a large schooner trying to head out of port on an ebb tide, business activity in the first quarter of 2004 might seem sluggish, acting much the same as it did in 2003. But as the year continues, the tides are predicted to rise and there will be plenty of open sea for good sailing.

Predictions for better times are coming from a number of watchers. Most of these pundits are finding strong indications that the tides of economic growth and construction activity will rise.

According to Eli S.Lustgarten, managing director for H.C. Wainwright & Co., a New York City investment firm, the economic news from the second quarter of 2003 suggests contractors should be more optimistic than pessimistic. At his presentation at the Economic Outlook Conference sponsored by the National Truck Equipment Association, Lustgarten highlighted several key indicators:

* Consumer spending up 3.8% (revised from 3.3%)

* Capital spending up 6.9% (revised from 7.5%)

* Government spending up 8.2% (revised from 7.5%)

* Tech spending up 16%

* Defense spending up 46% (revised from 44%).

Even in manufacturing--one of the hardest hit areas of the economy--Lustgarten has identified some signs of renewed economic growth. He pointed to a series of recent Institute of Supply Management (ISM) reports on business conditions. In many ways, they showed that economic activity in the manufacturing sector has been growing for the first time in many months.

For example, the September 2003 ISM's key economic indicator--referred to as the PMI--rose to 53.7. It was the third time in as many months that the PMI was above 50%. According to the ISM report, "A reading above 50% indicates that the manufacturing economy is generally expanding." Along with this trend, another key ISM indicator--the New Orders Index--increased for the fourth time in as many months to a level of 60.4.

Lustgarten's take on construction is positive, but a little less optimistic. He reminded conference attendees that 2002 was a good year fur all aspects of construction except non-residential. Housing was very strong at 1.71 million starts, up from 1.6 million in 2001. The increase resulted from higher personal income, lower mortgage rates, and household asset diversification.

In 2002 the non-residential activity stayed very weak for several reasons: high office vacancies (direct result of a slow increase in white collar job gains), a consolidating retail sector (less new store starts), and lower industrial plant construction (starts at a 30-year low). These overall trends affecting non-residential construction appear to be following through in 2003. Total construction is likely to be slightly lower in 2003, as both residential and public construction remain healthy while non-residential continues to decline.

This holding trend might swing upward in 2004. Lustgarten expects modest growth as non-residential spending finally turns up. He projects 2004 will show a recovery for non-residential spending for the first time in many years. He thinks it could rise 6% to 8%--following the domestic economic upturn--with virtually every subsector (industrial, commercial, and retail) participating due to each segments modest recovery from very depressed levels

Lustgarten's cautiously optimistic look at construction is shared by the Portland Cement Association. PCA forecasters predicted improving sales in the September edition of The Monitor, a monthly analysis of trends in the U.S. construction and cement industries.

The association focused on what it identified as a turning point in the U.S. labor market this fall. According to PCA's summer projections, the labor market was expected to stop shedding jobs by October and slowly begin adding them in the subsequent months (30,000 in November and 60,000 in December). As jobs increase, so does the need for places to work.

PCA also believes that overall economic growth is imminent based on an emerging pattern in construction employment. With the exception of a decline in February, month-to-month gains in construction jobs have increased every subsequent month throughout 2003. Through August, construction employment is running a healthy 0.4% above last year, when declines were consistent.

One item sure to boost the general construction environment is the eventual enactment of the TEA-21 Reauthorization Bill. This long-term commitment to fund the nation's transportation resources traditionally contains dollars for the construction of masonry structures, as well as highways and roads. The House Transportation & Infrastructure Committee was expected to introduce a bill in early November to reauthorize the federal highway program, and the Senate Environment & Public Works Committee may try to complete action on its version of TEA-21 legislation before Congress adjourns for the year.