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Sunday, 13 September 2015 20:46

Contractors find growth despite mixed economic data

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HOLLAND — When churches and nonprofits start building, Mike Novakoski sees it as a sign that the West Michigan economy keeps getting stronger.

And right now, the CEO of Holland-based Elzinga & Volkers Inc. reports the general contractor is riding a tailwind of business based in part from increased activity from faith-based nonprofits in the region.

Churches and faith-based nonprofits account for about 30 percent of the contractor’s business this year, the highest rate in the company’s history, Novakoski said, noting that Elzinga & Volkers has a backlog of $50 million in projects for religious groups.

That largely donation-based organizations are raising capital for renovations and new construction projects demonstrates the health of the local economic climate, he added.

“People are voting with their wallets,” Novakoski said. “The change in the economy is evident when we get calls from churches. When people are donating, you can call that consumer confidence.”

While Novakoski declined to name specific upcoming projects, he said Elzinga & Volkers expects its current pipeline of work to last 14 months to 18 months, which the company believes indicates an extended period of strong activity to come.

Although many contractors express a sense of optimism over the general economy and say their pipelines remain full of projects, their sentiment stands in contrast to a variety of recently released economic reports that show mixed indicators for the construction industry.

Michigan leading the way

In late August, the Federal Reserve Bank of Chicago released its monthly Midwest Economy Index, a weighted average of 129 economic indicators that measure growth in manufacturing, construction/mining, services and consumer spending in Michigan, Indiana, Illinois, Wisconsin and Iowa.

According to its most recent July data, the index decreased to -0.12, mostly because of declines in construction and mining. The silver lining in the data: Michigan remains by far the strongest of the five states included in the district study.

The index jumped to +0.13 for Michigan, the only state besides Indiana to show growth. Construction in Michigan, however, decreased slightly to -0.01.

The Federal Reserve also produces a relative index that’s meant to show how the Midwest compares to the rest of the nation. That index decreased -0.08 points, indicating that “Midwest economic growth was slightly less that would typically be suggested by the growth rate of the national economy.”

Despite the reports of a cooling economy, Novakoski said contractors have not felt any squeeze on their business.

“There’s been no slowdown. The only thing we’ve seen is bigger projects wrap up in the summer and fall,” he said, adding that many clients tend to avoid breaking ground on projects in the winter months.

Executives at other local construction firms share Novakoski’s lack of concern over the negative data.

Mike Verhulst, vice president of business development and community relations at Grand Rapids-based Wolverine Building Group, said he’s found plenty of positive indicators in the general contractor’s recent workload.

“Everyone I talk to says their growth is strong and ever so steady,” Verhulst wrote in an email to MiBiz. “Some sectors may cool down but (for the most part) they’ll continue to heat up.”

Comfort in other numbers

Despite a slide in the Federal Reserve report, contractors and architects can point to other data as signs of positive momentum. According to a September report by the Associated Builders and Contractors Inc. that’s based on data from the U.S. Census Bureau, nonresidential construction spending grew 0.5 percent in the month of July and is up 12.7 percent on a year-over-year basis. Based on seasonal adjustments, the month of July saw $696.1 billion in new nonresidential construction, the best reading since March 2009.

“Perhaps most importantly, job growth remains robust, helping to drive down office and other vacancy rates, prompting more construction starts. Recreational and business travel spending has been trending higher, helping to support construction in the lodging and amusement categories on a year-over-year basis,” ABC Chief Economist Anirban Basu said in the monthly report.

“A rebounding U.S. auto sector and expanding aerospace industry have also helped to fuel spending. State and local government capital outlays also appear to be recovering and were surprisingly strong during this year’s second quarter. In addition, materials prices have been in general decline, which has helped justify moving forward with construction projects.”

Additionally, the monthly Architecture Billings Index released by the Washington, D.C.-based American Institute of Architects (AIA) continues to show some gains in the industry. The AIA reported in late-August that the July index stood at 55.7, down one point from June. However, any score above 50 reflects growth, the report noted.

The index for the Midwest increased to 58.2 for July, up one point from June and the highest reading of the four U.S. regions the AIA tracks.

Growth in diversity

The variety of projects and industries available to contractors in West Michigan makes for compelling opportunities, sources said.

While Wolverine continues to find work in the industrial sector, in infrastructure projects in the oil-and-gas industry, and with food and agribusiness customers, Elzinga & Volkers expects religious organizations to remain an area of growth.

That’s a sentiment shared by Dan Vos of Ada-based Dan Vos Construction Co. Inc.

Vos said that while his company has experienced a “significant increase” in religious projects over the last 12 months, it sees the most potential from the number of new opportunities in the sector, which rose about 75 percent.

“This is obviously great news for our future backlog, but even better news for the religious institutions and faith-based nonprofits,” Vos said. “They are finally feeling confident enough in the economy to spend a little money.”

Read 4093 times Last modified on Monday, 28 September 2015 10:51

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