Butler Manufacturing Co. World Headquarters Building, Kansas City, MO

Nationally, the non-residential buildings environment weakened beginning in late 2000 and during much of 2001, but things are looking brighter as we move closer to the prime construction season. There is rising optimism among consumers, business leaders and economists that recovery from what is likely to be called a “short and shallow’ recession is at hand. Short and shallow it may have been in terms of length and breadth but certainly the non-residential construction market was one of the sectors most affected by the economic slump.

This set-back for construction and real estate markets was especially severe since it followed ten years of stellar growth in real non-residential investment. Corporate spending on new plant and equipment was one of the true driving forces behind the unusual length of the expansionary business cycle that ended early in 2001. In fact, over the previous six years prior to the beginning of the current recession, real business fixed investment rose at an average annual rate of nearly 10%—the best six-year rate since World War II.

It’s no accident that businesses and organizations of all kinds have learned that their buildings can play a big part in increasing overall company productivity and profitability.

That period also coincided with some of the best gains in productivity seen in a generation. It’s no accident that businesses and organizations of all kinds have learned that their buildings can play a big part in increasing overall company productivity and profitability. The cost, design flexibility and speed of occupancy advantages offered by systems construction have won tremendous acceptance among building buyers. As proof of the pudding that investment pays off, profits rose in tandem with capital spending during nearly every year of the expansion.

As a percent of overall GDP growth, corporate profit growth peaked in 1997 and moderated for the rest of the Nineties. For the past eighteen months, profits for many businesses have been under very significant pressure. While the profit picture is not yet a pretty one, there are signs that subdued inflation pressures and the lowest interest rates in years, coupled with definite signs of firmer demand, should lead to higher profitability for many firms this year.

There are many good reasons for optimism in the building construction industry. Housing has been a very important driver in the current cycle. Recent records have been set for starts, permits and new home sales. Improving levels of job creation, the wealth effect of stock market gains since the first of the year and low mortgage rates are driving housing activity to new levels. Where there are areas of new housing, new commercial and community development soon follows. And as the orders revival currently at work in the manufacturing sector spreads to new product lines, we can expect that sector to gain new traction as inventories are drawn down and production levels rise.

As business continues to improve, Butler Manufacturing Co. is ready to respond. During recessions as well as expansions, we invest in our ability to improve customer service, streamline processes and procedures and improve product variety, integrity and value. We have seen many business cycles in our 101-year history, and we consider each one an opportunity for improvement and innovation.

Kathleen Missman
Butler Manufacturing Co.
Buildings Division Economist