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By Kathleen Mimssman
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
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