Midwest Construction Forecast for 2008

Outlook for Iowa, Kansas, Nebraska, and Northwestern Missouri 2008

David Huey -- Associated Construction Publications, 12/20/2007

For years now, Associated Construction Publications (ACP), the publisher of Midwest Contractor, has offered a Consolidated Forecast of the upcoming year in its last issue of December. Using information gathered by Reed Business Information, trade association member surveys and discussions with construction industry leaders, ACP provides a snapshot of what you can expect in 2008.

As you can see in the chart below, there is good news and bad. The Midwest construction industry will continue to be affected by national and regional factors. Contractors expect that rising labor costs and an ongoing labor shortage will continue to be a threat to a profitable 2008. This will be no surprise to anyone struggling to find skilled workers in every construction category. The bright news is that large Midwest contractors, associations and educational institutions are creating training and awareness programs designed to bring more skilled workers into the field.

Of course, the general state of the economy is not expected to rebound significantly before the end of next year. Regional contractors, for the most part, have felt the impact of the housing slump, though some areas are experiencing growth. That reflects the market’s low confidence and tightening credit. The good news is that unemployment is low and wages are increasing. There is evidence that those factors, and the changing political scene, could spur a more optimistic economic environment.

Many Midwest industry leaders anticipate that cuts in public construction will be a significant threat in 2008. Despite strong road building and maintenance programs in Iowa, Kansas, Missouri, and Nebraska, there is a perception that falling tax revenues and rising gas costs will remain a drag on state road investment. The one exception may be in bridge repair, refurbishing and replacement. The bridge tragedy in Minneapolis led to a nationwide evaluation of bridge conditions and designs. Throughout the Midwest, DOTs have invested funds to measure the condition of their bridges. Bridge contractors are sharpening their pencils in preparation of more calls for bridge-work bidding.

Every contractor in the Midwest is lamenting the cost and shortage of building materials. Even so, across the board, builders foresee that their companies’ net income will stay the same or increase slightly. That optimism is due, in part, to strategies to eliminate waste, recycle, utilize materials more efficiently, and pass material cost increases onto the customer. One area of interest is the concrete crushing and recycling industry. More and more, Midwest foundations, walls, floors, and roads are being crushed into aggregates, and reused or sold to reduce waste and costs. Nebraska DOR recently received kudos for a program that recycled asphalt shingles and used them in road building. Look for more regional contractors to adopt a policy of use it up rather than throw it away.

Higher interest rates concern contractors that rely on credit to purchase equipment and materials, as well as potential customers that need credit to finance new structures. Some builders will delay large equipment buys, hold onto machinery longer, buy more used models, and turn to rental. Roughly three-quarters of Midwest contractors figure that half of their equipment fleet is more than 10 years old. While most don’t foresee major changes in their equipment purchasing plans for 2008, more than one in 10 owners will decrease their buying. Regional builders are responding to industry pressures and increasing interest rates by opting to rent rather than buy. Rental companies are expecting the upcoming year to reflect this trend to rent when feasible, buy when required. As for those considering investing in new buildings, state and municipality incentives will help offset the rising cost of borrowing.

All in all, while the total construction volume for 2008 is predicted to be down about 7 percent, most industry experts are optimistic. There are many factors that will affect the coming year that can’t be quantified. This is not the time to circle the wagons, nor to order a bold charge. Contractors are turning to new ways to do business, find new markets and create unique solutions to the challenges and risks of the future. At the end of the day, construction is still one of the best ways to make a living.