Where to find the geographic sweet spots in 2010

“We are moving through this recession sequentially, sector by sector, region by region,” said Kermit Baker, chief economist of the American Institute of Architects, during the Reed Construction Data forecast Webinar, Oct. 22. Geographically, the economic recovery will take many different forms, with some cities, states and regions seeing growth sooner than others.
The October 2009 Architecture Billings Index from the American Institute of Architects showed signs progress, but not yet recovery. The ABI comes from the AIA’s monthly work-on-the-boards survey and provides a glimpse of construction activities six months in the future. Billings activities in all four regions—Midwest, Northeast, South and West—have been moving up steadily, with the South reporting the most improvement during the last few months.

The Economic Activity Index from the Philadelphia Federal Reserve Bank also offers an indication of regional and state performance.

During summer 2009, all regions were down from the same period in 2008, and New England was the top performer of the eight regions, down 3.6 percent, according to the EAI. Vermont was even showing slight gains of 0.6 percent. “Housing was never that significant here. Neither was the securities market, which had big losses, nor manufacturing,” said Jim Haughey when he presented the data during the Reed Webinar. The South Atlantic is also “doing reasonably well,” he said, with EAI losses of 3.9 percent, year-over-year. “This is an area of the country where people continue to move,” he said.

The Gulf came in next with 4 percent declines, followed by the Plains, with 4.4 percent declines. In the Plains, North Dakota showed the largest nationwide gains of 3.5 percent. The Pacific region saw a 5.2 percent decline; the Mid Atlantic, 6.6 percent decline; and the Rocky Mountains region, 7.7 percent decline. “The West, the Pacific region and the Rocky Mountain region, is not doing particularly well,” Haughey said. “In Oregon and Washington, the recession seems to be ending, but certainly not in the Rocky Mountain region.”

The Great Lakes came in at the bottom with 7.9 percent declines in the EAI compared to 2008. “Declines have been even worse in Michigan, Indiana and Ohio because of the losses in the auto industry,” he said. Despite the major declines in the region, Wisconsin saw a more minor drop of 0.8 percent.

During the first quarter of 2010, the regional standings will look very different, Haughey said. “The Northeast will drop down, the South Atlantic will move up. The Pacific region will move up, and the Great Lakes may finally get off the bottom as manufacturing improves,” he said.
Some metro areas are expected to see improvements in construction during 2010. During the Reed Webinar, Baker named the five metro areas out of the top 50 largest cities that “we can expect to see movement from first,” he said.

Baker used five indicators to determine the growth cities: job growth, as “areas that have seen more job growth will see more spending and construction”; growth in local gross domestic product that demonstrates growth in the local economy; growth in home sales that “indicates consumers are feeling better about the economy”; office vacancy that shows which areas will see more construction when demand resumes; and industrial growth. He identified the top five performing cities for each indicator. The cities most frequently in the top five are the cities most likely to see growth.

Based on the criteria, Washington, D.C., is the city poised for the most construction growth in 2010, as it is in the top five for cities with growth in jobs and GDP, and has one of the lowest office vacancy rates. Austin, Texas, came in second, with top growth in jobs and GDP, followed by San Diego that has seen a growth in GDP and home sales. New York came in fourth, with top growth in GDP and one of the lowest office vacancy rates, and San Antonio came in fifth with top job growth, according to Baker.