Hard Knocks

Opportunity follows struggle. It follows effort. It follows hard work. All will be needed to keep the construction sector marching forward in 2010, with expanding opportunities for next year. Some bright news over the last month has increased optimism — stimulus money rolling into contractor’s hands, expansion of jobs in certain regions and increases in residential construction — but all that seeped away last month as grim data became the news du jour throughout July.

The first reports came from the voice of the worker: the Associated General Contractors of America (AGC). AGC noted seasonally adjusted construction industry employment slipped in June to the lowest total since July 1996 while the industry’s unemployment rate remained at 20.1 percent, more than double the average for all workers, according to analysis of new federal figures by the association.

“The recession may have ended a year ago for most of the economy, but for construction, job losses and business closures continue every month,” said Ken Simonson, chief economist for the construction trade association. “While the rest of the economy added nearly a million jobs in the first half of 2010, 114,000 construction workers lost theirs, joining the two million others who have become unemployed since August 2006.”

The industry added 49,000 jobs in March and April as homebuilders and highway contractors geared up, but 30,000 jobs disappeared in May and 22,000 in June as housing cooled and nonresidential building slumped further. The outlook for nonresidential building construction remains ominous, according to Simonson (and other studies below). In May, the latest month for which such data is available, architectural firms laid off workers for the 21st time in 22 months.

“If there’s less work for architects now, there will be less for building contractors to bid on and build in coming months,” Simonson remarked. “In contrast, engineering and drafting firms, which design infrastructure projects, added jobs three months in a row through May.”

Heavy and civil engineering construction — the category that covers most workers in transportation, power, water and wastewater construction — added 1,300 workers in June and has held roughly steady since last October, as federal stimulus funds have boosted construction in these categories, Simonson noted.

“The stimulus has helped,” said Stephen E. Sandherr, CEO of the association, “but any gains the industry experienced will evaporate unless Congress and the Administration promptly enact long-term spending bills for transportation, water, wastewater, rivers and harbors.”

Nonresidential Construction Will Slide in 2010  

Numerous reports also came out in July about the nonresidential construction market, which is feeling a big crunch. Private nonresidential construction spending decreased 0.6 percent in May, according to the July 1 report by the U.S. Census Bureau. On a year-over-year basis, private nonresidential construction spending is down 24.8 percent. Total nonresidential construction spending — which includes both private and public — slipped 0.1 percent from last month and 15.2 percent from May 2009, and now stands at $571.7 billion.

“Construction spending growth, to the extent that it exists, continues to be the domain of publicly financed projects, particularly those attached to the stimulus package passed in February 2009,” said Anirban Basu, Associated Builders and Contractors (ABC) chief economist. “This is clearly apparent in the list of subsectors that continue to register year-over-year growth, such as conservation and development, transportation and highway and street.”

According to the folks at the FMI Reach Services Group (one of the most regarded consultants to the construction industry), there have been positive signs for the general economy, unfortunately, the outlook for put-in-place construction for 2010 remains bleak. Total construction in 2010 will be down 5 percent after declining in 2009. Residential construction is expected to begin recovering in 2010, but nonresidential construction will decline a whopping 16 percent in 2010. Nonbuilding construction will continue to be a positive contributor thanks to the support of power and conservation and development construction.

The construction industry should definitely prepare for another year of decline in nonresidential construction. Construction lost 35,000 more jobs in May. There have been losses in 31 out of 33 consecutive months, bringing the construction unemployment rate to 20.1 percent, compared to 27.1 percent in the first quarter. An increase in residential construction in 2010 could begin to turn the employment situation, but it is unlikely that it would do much to offset the losses from nonresidential construction.