First Look - A Glass Half Full
By: Elizabeth Sherrod, managing and director of research, NAIOP
The national economy is now in the early stages of recovery from its longest and deepest recession since World War II. Now known as the Great Recession, the 2008-2009 recession started in December 2007 and ended in June 2009. During that period, from peak to trough, the economy declined by a total of 4.1 percent.
While the effects of this recession were felt by all segments of the economy, the construction sector was disproportionally impacted by the collapse of the financial markets and subsequent decrease in demand for new housing and non-residential building space. Residential construction peaked in 2005 with starts totaling 2.07 million units and declined to 554,000 housing units in 2009, a decrease of 73 percent. Non-residential building construction outlays continued to increase during the first three years of declining residential construction activity, peaking in 2008. However, with the national economy’s accelerating recession, non-residential building construction outlays fell by 20.4 percent in 2009.
- Although construction spending declined in 2009 due to the recession’s impact, it still generated a positive contribution to the U.S. economy.
- Building and non-building (roads, bridges, etc.) construction outlays totaled $907.8 billion in 2009, accounting directly for approximately 6.4 percent of the nation’s Gross Domestic Product (GDP).
- Non-residential building construction outlays accounted for 46 percent of all construction spending in 2009, exceeding the share accounted for by residential building construction spending for a second consecutive year.
The total economic benefit of office, industrial, warehouse and retail construction spending in 2009 was $288 billion.
This construction spending:
- supported 2.4 million jobs (full-time, year-round equivalent) across all sectors of the economy; and
- generated personal earnings totaling $89.1 billion.
In addition, maintaining and servicing the 264.4 million square feet of new office, industrial, warehouse and retail building space built in 2009 will require $871.2 million in annual operating outlay each year going forward. Each year, adjusted for inflation and changes in the level and quality of services, these new operating outlays will:
- Contribute $2.52 billion to the national economy (GDP);
- Support 21,222 jobs; and
- Generate total personal earnings of $801.4 million.
While residential building construction spending is projected to recover in 2011, a year before non-residential building construction spending is projected to increase, the GDP growth rate is not projected to exceed three percent until 2012. Three percent is the rate fast enough to significantly reduce the unemployment rate. The first year that residential and non-residential building construction spending are projected to both be increasing is 2012.