CHICAGO—There are numerous signs that the US economy is not ready to truly take off this year and fully recover from all the damage done by the financial crisis of 2008. But in a new report, Fitch Ratings says that while US nonresidential construction will increase by a modest 2% in 2013, the coming year could show a significant improvement. The agency noted that some institutions have become somewhat more comfortable with lending, and that this will help boost nonresidential construction by 5% in 2014.

In addition, CMBS issuance has also increased, even though the pace of originations remains far below what the market saw in record-setting year of 2007.

“Institutions will continue to be selective in their lending activities in the near term, which will likely moderate growth in the commercial construction,” says Robert Rulla, a Chicago-based director in Fitch's corporate finance group.

The loss of funds from the American Recovery and Reinvestment Act of 2009, which boosted public construction spending through 2011, resulted in a decline of 2.6% in 2012. And Fitch forecasts that public construction spending will remain flat this year but increase 3% in 2014. The passage of last year's federal highway bill will play a big role in that boost, since it has given state and local governments far greater certainty when planning projects. However, “it will take some time to start larger, longer-term projects so the benefits of the new highway bill will be more evident next year,” adds Rulla.

And since demand will vary for different sectors of the construction markets, financial performance will also vary among building materials companies, Fitch says. Building materials that supply the housing market should do well due to the increasing demand, but companies with exposure to the public infrastructure segment will continue to struggle in the short-term as spending trends remain weak.

Instant Insights /

Fitch: US Construction to Pick Up Next Year

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