Economist offers hope: Conditions improving

Phil Castle, The Business Times

Anirban Basu

Anirban Basu offers a measure of hope to a beleaguered construction industry in Western Colorado: “We’re seeing some significant improvement.”

As chief economist for Associated Builders and Contractors, a national trade association, Basu monitors a construction sector he says has only just begun to recover three years after the official end to the recession. But job gains and economic growth should help accelerate that recovery.

Basu counts the Western Slope among those regions where construction contractors could enjoy an additional advantage related to energy development.

Basu discussed his outlook for the construction industry on the national and regional levels at a presentation hosted by the Western Colorado Chapter of ABC at the Fruita Recreation Center.

In a separate telephone interview with the Business Times, Basu recounted the effects of the recession on the construction industry, detailed the nascent recovery since then and outlined his expectations for the next two years.

The construction industry was hit harder than any other sector during the recession, losing 2 million jobs nationwide, Basu says.

 He blamed not only the magnitude, but also the progression and nature, of the recession. A bubble in residential and commercial construction burst, followed by a wave of defaults in subprime mortgages. A financial crisis ensued that severely limited access to the capital upon which construction depends.

“Construction was just devastated,” Basu says.

After several years of decline, the construction industry has stabilized and  finally started to recover, Basu says. The recovery has been modest so far, though, with an increase of only about 65,000 jobs  nationwide over the past year.

For February, the national unemployment rate for the construction industry dropped six-tenths, but still stands at 17.1 percent.

Conditions in the construction industry typically lag one to two years behind the general economy. Three years into the recovery, then, the sector should start realizing improvement, Basu says. Growing momentum in job and economic growth eventually will accelerate that improvement, he says. “The data do not lie. The economy is on the move.”

As consumers spend more and businesses expand operations to keep pace with growing demand for products and services, increased commercial construction activity will follow, he says.

Credit standards have begun to loosen somewhat, making more financing available for construction projects, he adds.

Gradual progress is expected in 2012 as increases in privately funded construction offset declines in publically financed construction, Basu says. While large construction firms benefited most from infrastructure projects funded by federal stimulus dollars, smaller firms since have fared better in winning contractors for privately funded projects, he adds.

The ABC Construction Backlog Indicator (CBI), a measure of construction activity Basu devised, declined in the fourth quarter of 2011, but remains well ahead of the same span in 2010.

The CBI measures the amount of nonresidential construction work under contract to be completed in the near future. A backlog of more than 8 months is statistically connection with increases in construction spending, while a backlog of less than eight months is associated with decreased spending.

For the fourth quarter of 2011, the CBI shortened from 8.1 months to 7.8 months, but remains almost 11 percent longer than the fourth quarter of 2010. The CBI for the western portion of the United States that includes Colorado lengthened to 6.1 months.

Basu tempers his outlook for growth in the construction industry nationally with a warning about several factors that could hamper that growth, among them concerns about the Middle East and higher oil prices and growing national debt.

Federal government policies could either help or hinder the construction sector depending on what’s implemented, he adds.

Just as an improving national economy will bolster construction, improving state and regional economies will benefit Western Colorado contractors, Basu says.

Energy development also plays a role, he says. Some of the areas of the United States with the strongest economies and most pronounced growth in construction occur where energy activity has increased, including Louisiana, Oklahoma and North Dakota. “That’s not accidental, that’s natural resources.”

The same situation could occur in Western Colorado if exploration and production increase, he says.