Spending from the Federal government’s stimulus program is helping the construction industry, albeit slower than many expected. That’s according to Ken Simonson, chief economist of the Associated General Contractors of America.
Simonson spoke last week during an industrywide conference call hosted by Reed Construction Data, an industry information company. He said construction spending has been tailing off since 2006 and is down 10 percent from early 2006.
“We will continue to have less-than-trend growth and that’s bad news for the construction industry,” Simonson said. “State and local budgets will continue to remain under stress. Where a local government may be contemplating building a new library, it’s now down on the priority list. I think we’ll continue to see a lot of holdback on state and local spending.”
Construction-related stimulus spending, which Simonson said is at about $135 billion, includes $49 billion for transportation, up to $35 billion in buildings, $30 billion in energy/technology and $21 billion in water/sewer programs and the environment.
“I do think that the stimulus is helping now and will help more in the next year,” Simonson said. “But there are a few things that are holding it back, such as local prevailing wage laws and tax law changes.”
Simonson said construction spending is expected to rise 3 to 7 percent in 2011; but materials cost is also expected to rise at the same pace.
Contractors have been shedding jobs since 2006. September construction employment is back to where it was in February after slight drops, whereas the market outside the industry has added jobs for nine straight months.
Wages have also slowed, according to Simonson. In 2008, wages rose about 4 percent; now they’re at about 1 percent, Simonson said. Material costs were rising about 8 percent in 2008 and are now rising about 4 percent. Cost for asphalt and concrete materials are remaining steady, he said.
Non-residential construction spending
Although non-residential construction spending is off about 23 percent this year, according to Jim Haughey, chief economist for Reed Construction Data, some parts of the industry may begin to rebound early next year.
The large-scale construction market has been stalled for about the past three years, but highway spending is expected to rise seven percent in both 2011 and 2012, due mostly to gas taxes and stimulus money, Haughey said.
“There are some bright spots,” Haughey said. “But it will be still be several more years before people will say the market is back to normal.”
According to Haughey, hotel construction spending is expected to increase by 1 percent in 2011, but spending will still be below pre-recession numbers.
Big picture
Overall, 17 percent of the industry is out of work, according to Kermit Baker, chief economist for the American Institute of Architects, and that could present problems when the industry begins to shake its downturn.
“We’ve seen a lot of individuals who were previously employed in the industry look elsewhere and find jobs outside of construction,” Baker said. “There could be problems finding workers once employers again begin to look for help.”
Baker said the nation flirted with a double-dip recession over the summer months, but that sentiment is fading. The construction market, however, will see a modest increase in spending in the second part of 2011, Baker said.
“Construction is the last major component of our economy that remains in a recession,” Baker said. Read More.