e-Mail
Print
While 2011 didn'toffer too much progress in an economic turnaround, it seems that many people in the A/E/P and environmental consulting industry are adjusting to challenges. For 2012, increased stability is expected, although no significant turnaround is expected.
While the economy overall has shown halting signs of progress, volatility continues in the design world, as reflected in the wild swings of the Architecture Billings Index (ABI). Overall, fluctuating energy costs, political uncertainty, a high number of stalled projects, and the end of many federal government programs and stimuli add to the uncertainty.
According to the Bureau of Labor Statistics, the unemployment rate is showing very small decreases, falling just 0.4 percent to 8.6 percent in November. For the previous six months, the unemployment rate covered a narrow range — from 9.0 to 9.2 percent. According to the Associated General Contractors of America, construction employment declined by 20,000 in October of 2011, and construction industry unemployment rates hit 13.7 percent, a significant improvement over the reading of 17.3 percent from one year earlier.
Spending on health care construction experienced the largest private sector increase during October (3.5 percent), while spending on office construction declined by more than any other sector of private construction to a measly 0.8 percent. In contrast, publicly funded power construction activity grew by 2.5 percent during October while investments in conservation were down 8.3 percent, transportation was down 4.7 percent, and public safety declined 4.5 percent.
Although some markets are gaining a little strength, the nation has not seen a true housing recovery get underway. Home prices are still at an all-time low as foreclosures continue to drag the market down.
The ABI, which reports on the construction billing activity, has done little to quell the fears of those in the A/E/P and environmental industry. Following the first positive score in four months, the ABI reversed direction in September to 46.9, dropping from the previous month's score of 51.4. For October, the AIA reported an increase to 49.4, considered a near break-even level (a score above 50 indicates an increase in billing activity). With ups-and-downs throughout most of 2011, what the ABI will do in 2012 is a difficult prediction.
On the bright side, members of the design industry have persevered through creativity. Technologies such as building information modeling are increasing efficiency. As a result, firms are collaborating more.
Partnering is a trend expected to continue into 2012. Increased merger and acquisition activity is also expected in 2012.
While federal funding for many projects doesn't look likely in 2012, an ease in the availability of financing in the commercial market could get many projects finally underway.
Christina M. Zweig is a contributing editor. She can be contacted at christinaz@zweigwhite.com.
|
CEO Perspective
My overall outlook on 2012 is better than 2011, but with some ups-and-downs due to political uncertainty in an election year. The water behind the dam is slowly seeping out, if we get some clarity of the path the country is heading down, I expect that will turn into a flood. For now, the industrial market still is booming, and we expect that to continue. We also see urban and historic rehab continuing to be a solid market. We expect the services on the construction side of projects to reduce slightly as the slowdown in design work over the last two years works its way through the construction phase of jobs. We expect to see slow recovery in design work continuing, with most of the recovery starting late spring into summer. BIM coordination and building modeling in general as a standalone service is a trend I expect to take off. More and more small- to mid-sized contractors are pursuing work with owners who have mandated BIM on their jobs, and the builders do not yet have in-house expertise to truly deliver on requirements and expectations. This looks to be a good niche until they develop that capability.
We are hopeful of a gradual improvement in the public sector markets in 2012, fueled by latent demand and (hopefully) increasing tax revenues. Competition among firms has been particularly intense, but the "shake out" of recent years may begin to eliminate some firms from the competitive arena, moving the industry in the direction of a more traditional supply/demand equilibrium. The private sector will invest significantly in facilities which are part of a successful business model. The elections in 2012 will likely have a significant impact on the private sector and on potential investment in private infrastructure. However, the impact of the election will not be felt until 2013, unless the outcome becomes predictable as 2012 progresses. Despite the state of the economy, we will meet our budgeted financial objectives in 2011, with revenues and profit showing significant year-over-year growth. Our positive growth in 2011 is due to our business model, which emphasizes diversification within our practice, including geography, market sectors and services, technical disciplines, and client mix. Significant contributors to our success in 2011 include our operations in Canada and in our oil and gas pipelines business in the U.S. With funding for infrastructure projects being tight, particularly in the public sector, we look for "trends" that improve efficiency and productivity in the project cycle. In that sense, we see further movement toward design/build project delivery, and the use of public/private partnerships. To complement these trends, we will focus on our program management, construction management, and asset management service offerings.
It is certainly not clear where things are heading next year. We are hopeful that 2012 will be similar to 2011, but we will have to be vigilant about being able to adapt to a stuttering recovery and our clients' changing needs. Unfortunately, a trend I predict is some failures in the rampant consolidation of the industry toward large publicly traded consulting businesses. Consulting engineering is a business of intangibles, such as client relationships, value in the end product of your service and creativity and collaboration with large construction teams. When decisions start to be made based on short-term dividend gains and maximization of profit, many of these intangibles along with future business, will ultimately suffer. In 2012, we don't expect any truly "hot" markets, but even small upturns in markets that have been dead, such as retail, will appear to be "hot." On the negative side, we anticipate that federal construction spending will "cool" off. At Baldridge & Associates Structural Engineering, we will be cautiously optimistic while remaining fiscally cautious.
For 2012, we expect our business to be up approximately 10 percent. We anticipate the increase to come from the transportation segment based on new work we've recently booked, wireless telecommunications infrastructure work related to 4G rollout by the major carriers, federal agency work and continued expansion of exploration activity in the Marcellus Shale region. The power and energy market sectors will continue to grow, along with environmental services and some segments of mass transit, including the ongoing work in NYC. If the Federal government can pass the long expired transportation bill, there should be some benefit from that. In general, we should see slow, steady growth overall if recent trends in the economy that we've seen continue into 2012. Unlike the third quarter downturn we saw when Congress had difficulty with increasing the debt ceiling and the Eurozone was in a state of crisis, there seems to be some stabilization occurring in the overall economy, and if it continues into 2012 we should see a modest gain in activity on the engineering and construction side of the economy. In the industry, I think we will see more firms start to implement social networking tools such as company pages on Facebook and the use of Twitter in order to channel the public to the company's website. I also think that consolidation through mergers and acquisitions activity will continue unabated. |
