Full recovery of Charlotte’s construction industry could be years off

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Construction, once one of the Charlotte region’s most promising sectors, is now stifling the area’s economic recovery, with jobs and wages down by more than a third since the pre-recession peak and little improvement in sight, say local economists.

Pockets of the sector are starting to rebound, but economists interviewed by the Charlotte Observer say a full recovery could take years – and that thousands of employees laid off when the real estate bubble burst will be forced to master new skills to earn a place in the post-recession workforce.

“If you’re looking for sources of growth in the recovery, I don’t think construction can be counted on to be a major contributor,” said Rick Kaglic, an economist with the Federal Reserve in Charlotte. “It’s going to be a drag on overall employment growth.”

It’s a dramatic decline for a sector that, in years past, offered steady jobs and lucrative pay for the workers who built sprawling homes, glittering office towers and other hallmarks of the boom. The availability of those jobs helped fuel the region’s population surge over the last decade, drawing transplants who in turn created more demand for homes, offices and shopping centers.

Construction firms in the Charlotte area shed 36 percent of their workers from 2007 to 2010, by far the largest decline of any sector, new data from the U.S. Bureau of Labor Statistics and N.C. Employment Security Commission show. About 35,000 workers were employed in construction last year, the lowest level since 1995.

Those employees’ paychecks – an important driver of the local economy – have taken a hit, too. Construction wages fell 36 percent, or $894 million, from 2007 to 2010. Those wages make up 5.3 percent of the region’s total private-sector pay, down from 7.6 percent in 2007, the BLS data show.

Construction jobs from builders to electricians to flooring specialists have dried up largely because of the housing market’s continued woes. Home sales have plummeted and foreclosures have surged since the market peaked in 2006 and 2007, leaving a glut of homes. Unemployment and lower wages persist throughout the economy, too, meaning there’s little demand from buyers for new projects.

“That all suggests that it’s going to be a very slow climb out of this recession in the housing market here in Charlotte and elsewhere,” Kaglic said. “It’s going to be several years before you start to see … construction activity that even comes close to what we were seeing.”

Local building-permit data suggest some new projects are in the pipeline. About 180 building permits for single-family homes and 40 commercial permits were issued in Mecklenburg County in April, up from recent months.

But those numbers remain below their pre-recession levels. Single-family building permits, for instance, are down 34 percent since April 2008.

Some parts of the sector appear to be gaining steam. On Thursday, the Bissell development company announced it will build two 10-story office buildings in Ballantyne, a $100 million investment and a sign of the company’s confidence in the market. Charlotte is sure to see a boost in coming months, too, as it prepares to host the Democratic National Convention in September 2012.

Locally and around the country, building for energy, health care, education and other growing sectors has remained strong, said Brian Turmail of the industry trade group Associated General Contractors of America.

Private-sector demand is slowly improving, he said, but public-sector construction – which kept many construction companies afloat after the recession took hold – is beginning to wane as federal and state officials slash spending.

The unemployment rate for U.S. construction employees is 16.3 percent, down from 22 percent last year but still nearly double the overall unemployment rate of 9.1 percent. That number doesn’t reflect discouraged workers who have dropped out of the search, employees who have accepted lower-paying or part-time work or people who switched to other fields with better prospects.

How the construction sector performs in coming months is critical to the overall economy, experts say, partly because of its ripple effects through other industries, such as furniture, and partly because a pickup in construction hiring would boost overall employment levels.

In a report earlier this month, UNC Charlotte economist John Connaughton cited a “sharp decline in the construction sector” as one reason the N.C. economy expanded just 1 percent in 2010.

He expects construction will be one of four sectors to experience another output decline this year, though he predicts employment in the sector will increase slightly, about 0.9 percent.

Charlotte-area construction companies say they’re working harder these days to stay afloat and stand out. One key to companies’ future success is specialization, said Bob West, business development manager at A.M. King Construction Co. The Charlotte company works primarily for the food industry, building manufacturing, distribution and cold-storage facilities across the country.

Business fell by as much as half in 2009, but A.M. King experienced its second-best year last year and is now on track for its best year, West said. The company has hired seven people in 2011, boosting its staff by 30 percent in the last six months, and plans to hire at least four more by the end of the year.

“Not a lot of people do what we do,” West said. “We’re food experts, so we’re very specific in our target market.”

Other companies are following suit, focusing on medical facilities, for instance. And job-seekers are beginning to target such firms: A.M. King gets 50 percent more resumes these days than before the recession, West said.

But the company is selective about the workers it hires, he said. It employs architects, engineers and construction managers, meaning a college degree and specific skills are critical.

Experts say there’s a skills gap that could prevent many of the workers laid off during the recession from finding new jobs as the economy recovers, keeping the overall unemployment rate inflated for years to come.

Kaglic, the Fed economist, said goods-producing industries such as construction, manufacturing and mining have created fewer than 100,000 jobs in the U.S. over the last year. Service-providing industries, by comparison, created roughly 1.5 million.

“You’ve got guys out in the field who are swinging hammers or doing roofing or plumbing, and those skills aren’t easily transferred into service-providing industries,” Kaglic said. “It’s of vital importance that these folks get some retraining so that their skills more closely match the jobs that are being created.” Read More.

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