Construction Economic News

AGC releases construction investment impact data; state jobs shrink, income flattens

December 19, 2008

AGC released estimates on Tuesday of the impact of construction investment on jobs, gross domestic product (GDP) and personal earnings for the U.S. and each state (www.agc.org/stimulus). The estimates show that $1 billion of infrastructure spending supports $3.4 billion of GDP, $1.1 billion of personal earnings and 28,500 jobs. Approximately 9,700 (34%) are direct construction jobs; 4,600 are indirect jobs in supplier industries (mining, manufacturing and services); and 14,300 (50%) are induced jobs resulting from purchases out of the additional income of workers and owners in the directly and indirectly supported industries. The ratios are drawn from a model prepared for the Federal Highway Administration, which found similar impacts for federal-aid highway spending. State totals are based on an analysis of each state’s share of total construction employment and spending for AGC by Prof. Stephen Fuller of George Mason University. State impacts are smaller, especially for small states, since not all purchases of supplies or induced spending occurs within the state. The NAIOP Foundation recently released a similar analysis by Fuller that focused on office, warehouse, retail and industrial building construction (www.naiop.org/foundation/contdev.pdf).


The studies assume there are sufficient unemployed resources (workers, equipment, manufacturing capacity) to produce net increases. State employment data released on Friday by the Bureau of Labor Statistics (BLS) confirms the availability of workers, especially in construction. The seasonally adjusted unemployment rate rose in November in 37 states and the District of Columbia, fell in five states and was unchanged in eight. Compared to a year ago, the rate rose everywhere except in West Virginia, where the rate remained 4.6%. Seasonally adjusted construction employment fell compared to October in 36 states (including 12 with a one-month drop of 2% or more), rose in 10 and was unchanged in four plus D.C. Compared to November 2007, construction employment fell in 43 states and rose in only seven plus D.C. The largest percentage increases over that span were in Oklahoma, 4%; Louisiana and North Dakota, 3%; Texas and D.C., 2%. The largest percentage declines were in Utah and South Carolina, -17%; Arizona, -16%; Florida, -14%; Idaho, -13%; Oregon and Nevada, -12%. Over the year, nonfarm employment rose in 14 states plus D.C. and fell in 36 states; construction accounted for more than the total drop in Michigan, Montana, Nevada, Utah, Washington and West Virginia.

“U.S. personal income growth slowed sharply in the third quarter of 2008 with all states except New Jersey and Wyoming sharing in the slowdown,” the Bureau of Economic Analysis reported on Thursday. “U.S. personal income remained unchanged from the second quarter which had been boosted by economic stimulus payments. The third quarter personal income growth was the weakest for the nation since the first quarter of 1994 and contrasts with the 1.6% increase in the second quarter of 2008. State personal income growth rates in the third quarter ranged from a 1.4% increase in Wyoming to a 1.6% decrease in Mississippi.” Construction industry earnings (payrolls, supplements to wages and salaries and proprietors’ income) decreased, contributing -0.03% to total personal income change. By state, the contribution of construction earnings varied from 0.12% in North Dakota to -0.27% in Utah.

New construction starts in November fell 3% from October, McGraw-Hill Construction reported on Thursday, based on data it collected. The year-to-date total, comparing the first 11 months of 2008 to the same period of 2007, fell 16%. Residential building tumbled 9% and 39%. Nonresidential building dropped 2% and 0.1%. Nonbuilding construction climbed 1% and 2%.

The American Institute of Architects stated on Wednesday that its Architecture Billings Index, a measure of how many architecture firms reported higher or lower billings, hit a new low for the second straight month in November. The lowest readings were for firms with commercial/industrial practices, followed by residential, institutional and mixed.

“Contractors are negotiating with their unions in an effort to lower labor costs by up to 25% as a way to help to revive the city’s ever weakening construction industry,” Crain’s New York Business reported on Friday. “There are roughly $4 billion to $5 billion worth of projects in New York that have either been stalled or haven’t started because of difficulties in obtaining financing, according to Louis Coletti, Chief Executive of the Building Trades Employers’ Association, which represents the contractors….Ed Malloy, president of the Building and Construction Trades Council, which represents the unions, said that the unions might be willing to agree to freezing wages next year as part of the cost savings efforts. He notes that at present union workers make an average of $60 to $70 per hour….Construction costs have been falling in recent months as demand dries up. The cost of raw material such as steel has…slipped and the price of renting equipment such as cranes has dropped. Meanwhile, contractors are lowering their fees to win work and developers are putting more equity into their projects to meet banks’ strident requirements.”

One type of construction that is proceeding is Base Realignment and Closure (BRAC) work. “In its latest round of construction announcements, the San Antonio [BRAC] program has awarded three contracts worth a total of $101 million,” the San Antonio Express-News reported on Friday. “During fiscal year 2008, the BRAC program awarded $1.2 billion in contracts. The BRAC program is expected to bring more than 12,000 jobs to Fort Sam” Houston.