MASSIVE LAYOFFS. STOCK-MARKET SWINGS.
Foreclosures. Bankruptcies. Bailouts. The ecomony’s downward slide has become impossible for Americans to ignore. At press time, the Washington, D.C.- based U.S. Department of Labor reported the U.S. unemployment rate at 6.7 percent. Th at still is relatively low compared with 10.8 percent experienced in November 1982, the highest rate since 1980 when the current methodology for calculating unemployment rates was established. However, people are working more hours for less money, saving little and paying more for fewer available products. In addition, home ownership—the American dream—is not providing the nest egg it once did. Th is generation is seeing the lowest home values it ever has experienced. So how is today’s recessionary period aff ecting the metal-construction industry? Metalmag sent out a nationwide survey in late September 2008 to a sample of readers, including metal-roofi ng contractors, metal-building contractors, design-build fi rms, general contractors and architects, to determine how the economy is aff ecting their businesses. From the mountains of the West to the coastlines of the East and all the valleys and prairies in between, businesses in the metal-construction industry are feeling the negative eff ects of the U.S. economy.
Question: Has the economy affected your business?
The Washington-based American Institute of Architects’ November 2008 Architecture Billing Index showed a further decline in billings from 36.2 in October to 34.7, the lowest level since the survey’s 1995 inception. A score of more than 50 indicates an increase in billings. The index provides an idea of construction spending that will take place nine months to one year in the future. According to the Washington-based U.S. Census Bureau, construction spending in October 2008 totaled $1.06 trillion at a seasonally adjusted annual rate, which was down 0.3 percent from September and 6.6 percent from October 2007. Metalmag’s readers are experiencing these reductions firsthand. Lack of financing, customers’ economic uncertainties and commodities pricing seem to be the main issues readers are confronting. “There has been a lack of new starts in the commercial and residential sides of things,” says Wally Geer of Greymar Associates, a development management consulting business in Ventura, Calif. “Many potential projects are on hold, pending what will happen with the economy during the next few quarters.” Architects agree. “The questionable economy has aff ected the commitment of developers to proceed with projects,” notes Kim Phillips with Phillips/Sekanick Architects, Warren, Ohio.
Contractors are experiencing more competition for fewer jobs. “Companies are taking work at much lower margins just to have work,” explains John Gross of Tri-City Electric Inc., Tampa, Fla. “As a large company with much overhead, staying competitive can be a challenge. At the same time, we have the resources to stay in the black and weather some hard times.” Thomas Chase of Neagley & Chase Construction Co., South Burlington, Vt., reports that he has been forced to take less desirable work to maintain his company. “We’re working harder to fi nd leads and going farther from home.” Not everyone has seen declines in business, however. An anonymous reader reports that repeat clients have maintained his or her business. “We have long-term clients that ride these storms as part of their business plan. But if we continue to advertise gloom and doom, someone will pay attention and shut down.” A lucky few reported business growth based on increased renovation work. “I’ve encountered complete kitchen renovations and master-bedroom-and-bath-suite renovations for continuous long-term use by current owners,” says William Ervin of William L. Ervin Architects, Tallahassee, Fla. “Mercantile projects have included subdividing large spaces into smaller (2,500 square feet [232 m2] plus or minus) rental spaces for small-business tenants, and I’ve completed interior-unit renovations for a small business moving from rental offi ces to a condo it purchased.”
Transporting materials and workers to job sites impacts readers’ bottom lines. And recent swings in fuel prices have been diffi cult to budget for. Al Siwik of Ahrens Cos., Lake Park, Fla., explains how the increase in fuel prices aff ected his business. “Freight surcharges and fuel costs are aff ecting materials and subcontractor pricing, which is making it difficult to be competitive when bid ding on commercial projects in Florida,” he says. An anonymous reader reports, “Gas has added more cost for our business to absorb or otherwise add to our estimates in hopes of staying competitive in our already tight market.” Some businesses felt increased fuel costs when using company cars, service trucks and rental cars, and one reader says he is “paying employees more per diem so they can aff ord to show up for work.” Although the price of fuel has fallen signifi cantly, at press time OPEC promised to slash production to push prices up again.
Question: Is new construction increasing, decreasing, or the same in your region
79.2% - Decreasing
14.6% - Same
6.2% - Increasing
At a time when everyone is tightening budgets, it makes sense to improve the efficiency of buildings as a way to save money. Seventy-three percent of metalmag’s readers who took the magazine’s survey are seeing an increase in sustainability practices in their areas, especially within government and health-care facilities, schools and utilities.
“We’re seeing lots of interest in sustainability across the board but are still finding it hard for clients to overcome the idea of initial costs versus long-term costs,” remarks Mark Harris with studiTEN architects LLC, Colorado Springs, Colo. “We are still a nation of short-sighted vision. We seem to have lost our grandparents’ idea of providing for our children. I’m hoping this will overturn as finances will make the point for us all.” Tight budgets are forcing architects to veer away from specifying some of today’s hot green-building materials. “Interest defi nitely is up, but if a green product is more costly, the likelihood of that product being implemented has decreased with the economy,” notes Cindy Fleming with Fleming Alliance Architecture Inc., Dana Point, Calif. Despite negative news in the housing market, an anonymous reader reports that custom-home building is on board with green design and construction, and the push is coming from owners. “Our primary business is custom residential. Approximately 75 percent of our client base expresses interest in green/sustainability.”
AN OBAMA ADMINISTRATION
More than 81 percent of metalmag’s readers responded that a new president will aff ect the economy. At the time of the survey, Barack Obama had not yet been elected to the nation’s highest office, and those who took the survey oft en noted that a new administration would result in a change of perception and overall improvement within the nation. “Although I am voting Republican, I think if a Democratic ticket is elected it will give the general public a bump of hope that a new team is going to get a turn at bat aft er the old team struck out,” Geer says. Obama supporters liked his platform of change and immediate assistance for Americans struggling in the economic crisis. One reader writes, “He has no magic wand, but a plan orchestrated by tax cuts to the middle class, small businesses and those suff ering now may help.” Another anonymous reader sums up what everyone in America is thinking, even aft er the election, “Hopefully a new president will make improvements. I don’t see how it can get any worse.”
According to the Arlington, Va.- based Associated General Contractors of America, the construction industry provides jobs to 7.3 million people and accounts for 8.4 percent of the nation’s gross domestic product. Therefore, it has a powerful eff ect on the U.S. economy. During his campaign, Obama pledged to spend $210 billion during 10 years as part of two programs to create jobs in green-collar industries, including development of environmentally friendly energy sources, and the construction industry, especially in infrastructure and public projects. As the new president takes offi ce this month, however, we have yet to see how his administration will assist the struggling construction industry. Today’s construction and design industry experts warn that anxiety within the credit market likely will cause conditions to get worse before they improve. But if history is an indicator, the U.S. economy again will see brighter days; perhaps some new and notable programs will solidify this country as a nation of innovative thinkers and doers.
Question: Do you believe steel prices will continue rise?