Construction Economic News

Simonson Says: Parsing the Construction Employment Reports

June 8, 2010

Construction employment shrank by 35,000 jobs in May, seasonally adjusted, virtually wiping out the 41,000-job gain recorded in the previous two months (27,000 in March and 14,000 in April), the Bureau of Labor Statistics (BLS) reported on June 4. Despite appearances, it is too early to conclude that the industry is on a renewed downtrend after finally adding jobs.

All three of the monthly numbers represent very small changes in an industry that employs almost 5.6 million workers. And the rate of job loss, relative to a year earlier, has declined steadily from peaking at 17.4% in the year ending last September to 8.6% in the 12 months through May.

One hopeful sign comes from architectural services employment. This series is not seasonally adjusted and is presented with a one-month delay. The April figure was up by 900 jobs, or 0.5 percent, compared to March, the first monthly gain in nearly two years. Although architecture firms had been trimming employment steadily since July 2008, the job cuts have been much smaller since August 2009 than in the same month of the year before. This trend matches the findings of the American Institute of Architects' Architecture Billings Index (ABI), a monthly measure of how many architecture firms had higher or lower billings compared to the prior month. The April ABI of 48.4 was the closest it has been to the breakeven reading of 50 since January 2008.

Architectural employment and billings are suggestive of future demand for building construction-if architects are generating fewer jobs and billings, there will be fewer projects to bid on and build in a few months. Thus, the movement of these series toward or across the breakeven threshold suggests prospects for building construction are likely to improve late this year or early next year.

BLS breaks nonresidential construction employment into three components: nonresidential building, specialty trade contractors, and heavy and civil engineering construction. The latter has had the most months with seasonally adjusted employment gains-four-and the smallest year-over-year percentage decline-6.2 percent from April 2009 to April 2010. But further improvement is questionable. Stimulus spending on water, wastewater, higher and other transportation projects may be near a peak. Meanwhile, states are still cutting back on their public works funding. Without long-term, higher federal funding for air, waterways and land transportation facilities or for drinking and waste water treatment plants, heavy and civil engineering employment may drop back in a few months.

In short, nonresidential construction employment is no longer disappearing at the double-digit rates of a few months ago. But there is no assurance that it will turn positive and stay that way any time soon.