Market pulse
Economists eye interest rates, material costs

By C. Richard Cotton

Interest rates on borrowed capital, building material costs and the price of fuels are drawing plenty of attention within south-central construction firms.

Even regional economists are looking at those same factors, as well as other statistics to help them foretell the future.

"I see cost increases in materials and equipment," predicted Dr. Keith Womer, director of the Hearin Center for Enterprise Science at the University of Mississippi's School of Business. "Construction equipment costs are not going to go down. You will see price increases in commodities and fuels."

It's not all doom-and-gloom but there are certainly some areas in the construction future worth monitoring.

"We're concerned with the price of steel and fuel," said Ed Rodgers, president of American Constructors. The Nashville-based firm is constructing the $92.3 million Schermerhorn Symphony Hall, which will be home to the Nashville Symphony. The 1,900-seat venue is scheduled for completion in September 2006.

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That project, whose foundation work is nearly complete, is "coming out of the ground" after beginning in January, Rodgers said.

American's corner of the market is mainly in "building elementary schools to colleges," Rodgers said. He added that strong residential housing markets in Nashville and some other areas of Tennessee have been driving much of what his firm takes on.

The firm recently started construction of two schools in Williamson and Bedford counties. The $18 million high school and a middle school of the same contract amount are results of population growth in those areas.

But rising interest rates could dampen the housing boom that has fueled larger projects.

Ahmad Ijaz, economist at the University of Alabama's Center for Business and Economic Research, said, "A strengthening economic recovery will raise mortgage rates and consequently slow home sales." That, he predicts, will be offset somewhat by "significant improvements in payroll employment."

But Ijaz remains cautionary: "While nonresidential construction appears to be rebounding, its growth rate will not get up to par until late 2004 or perhaps 2005. After declining in 2002, nonresidential construction is now showing signs of a rebound."

Ijaz said that some major industrial construction projects in the past couple years - a Hyundai plant built near Montgomery and expansion of Tuscaloosa's Mercedes plant, for example - "helped Alabama avoid the more severe downturn in industrial construction that was experienced nationally."

Last year, Ijaz predicted a 2.5 percent increase in nonresidential construction for 2004.

In early 2005, Brasfield & Gorrie LLC of Birmingham will begin construction of the $55 million Colonial Promenade Shopping Center in Alabaster, south of Birmingham. Pamela Harris, the firm's public relations manager, said the company is also building an addition to the women's and children's facility at St. Vincent's Hospital in Birmingham.

"Business is good, with a lot of projects going on," Harris said.

Yates Construction, based in Philadelphia, Miss., has a substantial stake in Alabama building as it constructs Caribe Resort Condominiums in Orange Beach. Jim McArthur, manager of business development for Yates' Gulf Coast division, said four towers of 200 condominiums apiece comprise the $150 million project.

The company is also building several other large projects on or near the Gulf Coast of Mississippi.

"We have started the Orr-O'Keefe Museum in Biloxi," McArthur said. That five-building, $18 million complex is designed by Frank Gehry, the Los Angeles architect who designed the stainless steel-skinned Guggenheim Museum in Barcelona, Spain.

The museum was started this year and will be completed in 2005.

The Gulf Coast continues to be a source of sizable projects for companies such as Yates and Gulfport-based Roy Anderson Corp. Gina Dambrino, Anderson's director of marketing, said her firm is building the $82 million Hard Rock Casino & Hotel in Gulfport and Seabreeze Condominiums, a $20.8 million contract in Biloxi.

Up the road in the Jackson area, Yates' vice president of business development, Jody Tidwell, said the firm is on solid ground for future work: "We just got the Student Union Building contract for Jackson State University," he said. That $20 million-25 million project will begin later this year.

Yates' biggest future projects in the Jackson area are the new Mississippi Braves stadium and the BassPro complex next door to each other in nearby Pearl, Miss. Both projects are valued at about $25 million. Tidwell said the stadium for the Atlanta Braves' AA team must be completed by the beginning of the 2005 baseball season.

"I think the economy is coming back and we'll see an upturn in commercial construction," Tidwell added.

Jeff Collins, director of the Center for Business and Economic Research at the University of Arkansas' Sam M. Walton College of Business, has a similar optimistic outlook, especially for northwest Arkansas.

"We've got a lot going on here," he added.

A booming residential construction market is driving nonresidential construction; Collins said there is even concern among financiers in the region about a shortage of excavation and dirtwork contractors. He said most of the growth is in Washington and Benton counties.

"Wal-Mart corporate (headquarters in Bentonville) drives much of the growth in the area," Collins said. "The wealth is concentrated in central and northwest Arkansas." He said he expects the growth in those regions to continue for at least the next 18 to 24 months.

Across the Mississippi River in Tennessee, Dr. Matt Murray, associate director of the University of Tennessee's Center for Business and Economic Research in Knoxville, predicted "basically more of the same."

He said he was confident commercial construction spending will continue at about the same rate as it has in metropolitan areas, with rural areas getting less of the pie.

"Interest rates are going to go up," he added. "Industrial construction will go up if the (economy's) expansion is here to stay." He predicted that a 1.9 percent growth in jobs next year will help prompt more construction.

The University of Mississippi's Womer didn't quite agree with Murray's projections. He said that even with an increase in jobs, the almost inevitable rise in interest rates will have a negative affect on nonresidential construction.

He added that there is some bright news.

"There's a gigantic highway bill winding its way through Congress" and a "shift of activity to highway construction is on the horizon," Womer said.

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