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Economic Woes Trickling Down to Texas, But Recovery Will Come

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Statewide, the deterioration in the state’s fiscal health will be a big issue this year as sales tax revenues are down – which impacts everything from school funding to the Legislative budget.

Earlier this year, McGraw-Hill Construction hosted its Outlook 2010 Industry Forecast and Trends executive conference in Irving. McGraw-Hill Economic Affairs Vice President Robert Murray indicated that statistics show a mixed picture. The corner is being turned, but it’s not enough traction that recovery is certain.

Nationwide, commercial building starts were down 55% from 2008 to 2009 and the rebound won’t happen this year, he says.

“It’s going to be a slow recovery,” says McGraw-Hill Construction Research & Analytics Sr. Economist Jennifer Coskren. “Oil and gas prices have not had a big benefit here in Texas.” While the Texas budget is relatively healthy, cuts loom. Until 2009, sales-tax revenues had been a positive, but those are down 6.5%, she adds. And shortfalls are on the horizon.

Single-family construction should turn around in 2010 as most signals indicate that the worst is over, Coskren says.

“Builders are feeling more upbeat and more than 60% of Texas homebuilders said in a Dallas Morning News survey that business will pick up,” Coskren adds.

However, Coskren calls the commercial side the “poster child for a very bad 2009 in terms of construction.” While it was a tough year, she is not expecting a repeat of the 1980s bust.

Property values, rents and vacancies are not expected to make a comeback until 2011 at the earliest, she adds.

Stimulus dollars have stabilized infrastructure construction and new schools must get built. There is an anticipated 32% increase in enrollment in Texas between 2006 and 2018, Coskren says.

“Recovery is not going to be uniform,” Coskren says. “Housing will recover, but we’re uneasy about multifamily. Commercial? Forget it in 2010.” She adds that manufacturing will have a tough year. And, “Education and health care will have a good year and [engineering] should benefit from all those stimulus dollars.”

Murray says public works seem to be the cushioning element in construction. That was down 1% in 2008 and flat in 2009.

“That is where the emphasis of the stimulus bill has been in strengthening the construction industry,” he says. “In a normal construction cycle without a stimulus, we would see institutional building and public works continuing to lose momentum in 2010 and 2011. What the stimulus has done in public works is maybe at the expense of 2012 and 2013, but the impact [of the stimulus] will be primarily on public works.”

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