Construction Employment Shrinks in 325 of 337 Metro Areas

All but 12 communities nationwide saw declines in construction employment between September 2008 and September 2009 according to a new analysis by the Associated General Contractors of America (AGC) of metropolitan area employment data from the Bureau of Labor Statistics.

The analysis found more construction jobs were lost in Phoenix (35,100) than in any other city in the country. “The areas that got really hard hit are the Sunbelt fast-growth areas where the economic model for the last 20 years has been centered literally around an influx of new residents and dealing with the construction that they bring,” says Brian Turmail, senior director of public affairs for Arlington, Va.-based AGC. “Phoenix was one of these classic construction boom towns that had an economy built almost exclusively around growth, and when the growth stopped and housing prices took a plunge that essentially devastated the market.”

All told, 38 communities saw construction employment declines of 20 percent or more during the past 12 months. Reno-Sparks, Nev., had the largest percentage decline with a 35 percent drop in employment. Other cities with large percentage declines include Kokomo, Ind. (31 percent); Redding, Calif. (29 percent); El Centro, Calif. (29 percent); and Wenatchee-East Wenatchee, Wash. (28 percent).

In comparison, only one community saw double-digit job gains. Columbus, Ind., led the nation in construction job growth with a 15 percent increase. This uptick was due to an infusion of state and federal funds to help stimulate reconstruction after major recent flooding. “Before the flood, their [construction employment] numbers had been going down, down, down,” Turmail says.

Seven other cities saw increases in construction employment year-over-year including Anderson, Ind. (6 percent); Bismarck, N.D. (3 percent); Tulsa, Okla. (3 percent); and Baton Rouge, La. (1 percent). Yet those eight cities combined added only 2,100 construction jobs over the past 12 months.

The murky employment landscape doesn’t surprise industry executives. “Construction is such a lagging indicator in any cycle,” says Mike Schlegel, president of Greenbelt, Md.-based Bozzuto Construction Co. “I suspect we will see job losses in the construction industry continue into the future.” Employment will not start to tick upwards until the availability of debt and equity comes back into the marketplace, Schlegel adds. “Developers want to get projects started today knowing that it will take 24 months to deliver that project, which is appropriate timing for coming back into the market as inventory will have been bled through and there will be a wave of people needing to rent. But they can’t get the debt and equity needed to get the projects financed. They feel stuck.”

They will likely feel stuck for some time. AGC predicts only between a 5 percent decline and slim growth in the commercial construction market in 2010 on top of what the association estimates could be as high as an 18 percent decline in the construction market this year.

Costs Climb
Though construction spending continues to decline, construction costs are beginning to climb, signaling the end to the “limited-time” sale for construction, according to AGC’s analysis of the latest producer price index released in late October by the U.S. Bureau of Labor Statistics.

“The days of construction estimates coming in 20 percent under estimate may soon be coming to an end,” says AGC’s chief economist Ken Simonson. “These figures serve as an important reminder that governments and developers looking for a good deal on construction should act quickly before having to pay significantly more for their projects.”

The analysis by Simonson found significant upward movements between August and September 2009 in the prices of copper (10 percent increase); aluminum (2 percent increase); and steel (3 percent increase). Additionally, the cost of plastic construction products rose 1.2 percent; the cost of prestressed concrete products rose 1.5 percent; and iron and steel pipe and tube rose 1.2 percent. Some construction materials prices did continue to decline including gypsum (down 1.2 percent) and plywood (down 0.3 percent).  

These price increases, however, aren’t in line with what all industry folks are seeing in the field. “We are not seeing increase in prices but rather still seeing declines in prices,” says Bozzuto’s Schlegel, who notes that the spike in copper costs is likely due to China’s recent purchase of 300,000 tons of the material. “I expect the sale in construction prices we are seeing in 2009 will continue well into 2010. There may be minor hiccups in the costs of lumber, copper, and steel, for instance, but nothing significant. Prices will remain 10 percent to 15 percent down from their peak.”