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There has been a three-percent bump in spending

Construction builds on despite recession

Cranes are swinging and bulldozers churning around the new U.S. Federal Courthouse in Jackson. The $122 million project at the corner of Court and West Streets in the downtown area has a target completion date of 2011.

It’s a refreshing sight to go along with new numbers from U.S. Department of Commerce, numbers that sport the first gain in construction spending in six months. According to a May 5 Wall Street Journal article, construction spending saw a three-percent bump especially for nonresidential projects like power plants and government structures.

The Associated General Contractors of America (AGC) was quick to reply with its own analysis. “Increases in manufacturing construction are being propelled by huge refinery and steel-mill projects that were begun well before the economic slowdown,” says economist Ken Simonson in a release issued by the AGC. Simonson says nonresidential construction activity could post another decline in the coming months thanks to declining office and hotel occupancy rates, difficult retail conditions and a challenging credit market. “Spending could fall by as much as 9 percent in 2009, even with the stimulus funds,” he says.

Perry Nations, executive director of the Associated General Contractors of Mississippi, agrees that the numbers may give off a false sense of security. “I think the reason the numbers are up is because of existing construction and on-the-books works where financing was already obtained or the project was in the preliminary stages of design and engineering,” he says. “We in Mississippi are different in the fact that we fill in a lot of Katrina construction going on. There’s going to be some tough times out there we just haven’t hit them yet.”

One trend that Nations says he has noticed is the increased number of contractors bidding on projects. “We usually see five or six contractors in one place, now I’ll see ten or fifteen. They see the end of the road where they are going to be caught up with work and they’re looking for work to carry them on for the next six to eight months or so.”

Nations adds that lots of infrastructure work is scheduled for the Gulf Coast from roads to bridges to “hidden infrastructure” like water and sewage. “There needs to be a big effort here because our infrastructure has aged so bad and can’t go much further,” he says. “We got some bridges that were obsolete ten years ago.”

“I’ve seen a decline in private development whether its retail or office projects,” says Reed Nelson, president of HM Williams Construction Inc. of Jackson. “It appears private developers are gaining less access to private dollars. Banks are tightening up and scrutinizing more and more.

Williams says his company has twelve new projects all over Mississippi from Corinth to the Coast. “We’re still a little above over last year on our volume,” he says. “We get our business off relationships and just try to exceed their expectations every time that way they will ask us back.” Nelson adds that in this tough economic time, contractors are just going to have to go with their gut and be smart about their decisions.

Williams Yates of W.G. Yates and Sons in Biloxi says that he is already seeing the slowdown. “For six to eight months we have seen a drop off in new work in the private sector,” Yates says. “I started in the business in 1995 and this is the worst that I have seen it.”

Yates adds that construction is usually a “lagging instead of a leading sector” because some projects can be in the pipeline for a while. “We’re telling our clients that if they can get the financing, then it’s a great time to build since the prices of materials is generally down. (As a company) we are using this time to focus on the basics: providing value to our clients and building the project on time and on budget. You just have to do your job, that’s really all you can do in a bad market.”

Contact MBJ staff writer Stephen McDill at stephen.mcdill@msbusiness.com.

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