FMI, management consultants and investment bankers for the construction industry, recently released its construction outlook report for the second quarter of 2009. Following are some of the highlights.

Last quarter, the outlook for construction was described as just plain ugly. Unfortunately, this still holds true. Total construction in 2009 and 2010 will be down 13 percent and 7 percent, respectively. We still anticipate that residential construction may find the bottom this year, but that the decline until it does will be steep. Residential construction will decline 19 percent in 2009 and 1 percent in 2010. Nonresidential construction will turn negative this year and decline 14 percent with even further declines of 17 percent in 2010. Nonbuilding construction will continue to be the only bright spot, increasing 4 percent per year in 2009 and 2010.

Year-to-date nonresidential put-in-place construction through April was flat, but is expected to decrease sharply throughout the year. Tight credit continues to cause cancellations and delays. Credit is expected to remain tight through 2010, and delays and cancellations are likely to increase.

Now that the details of the American Recovery and Reinvestment Act of 2009 projects are beginning to become known, nonresidential building contractors are realizing stimulus funds won’t bring an immediate cure for declining backlogs, however, 23 percent expect the bill will increase their backlogs as much as 5 percent in the next year.

The nonbuilding construction sector is the only bright spot in put-in-place construction. This mainly is due to the stimulus bill, but it is not in the apparent segments. The stimulus bill appeared to be ready to step in and save the highway and street segment, and to create new jobs in this segment. As it turns out, only paving contractors have benefitted so far, and they are facing intense competition, which has driven down prices. The stimulus funds for highways and streets are only barely, if at all, offsetting the loss from state revenues that would be used for this type of construction. The water and wastewater segments were intended to benefit from the stimulus bill, and both will receive some benefit. These segments have been revised slightly upward from 2010 to 2012. The conservation and development segment was a surprise winner from stimulus funds. This segment has been revised significantly upward for 2010 through 2013. The Army Corps of Engineers received $4.6 billion from the stimulus. Although, not all of these funds will be used for what we consider construction, and it will take several years for the funds to be worked into construction, it is a large amount of money considering that the market is around $5.5 billion before the stimulus.

Obviously, the construction industry is not only dependent on the stimulus bill. The general economy is a main driver for both residential and nonresidential construction.  Consumer spending likely is to be the key to recovery. However, consumers won’t spend while their confidence is low, and they can’t spend if they don’t have income from employment. The employment situation continues to worsen. The unemployment rate increased to 9.4 percent. Since the recession began in December 2007, payroll employment has fallen by 6 million, and the unemployment rate has increased by 4.5 percentage points. Job losses continued to be widespread, but the rate of decline moderated in construction. Construction has lost more than 1 million jobs since its January 2007 employment peak.

The economy may show some signs of improving, but it is just the beginning of the downfall for nonresidential construction. Nonresidential con-struction typically lags the general economy by about 18 months. Intense competition that has been bringing down prices has been reported. This is good for owners, but not so good for contractors. Nonbuilding construction will remain positive for the forecast period with conservation and development, water and wastewater construction leading the sector.