When we published our 2009 State of the Industry issue, the economic stimulus bill had yet to be enacted. The hope was that stimulus money directed toward U.S. infrastructure and public works would affect a slow and steady turnaround for the construction industry, at least by the end of 2009.
Of course, the bill passed and some money has actually made it to the project level, but any strong positive influence on overall recovery for this industry still remains to be seen.
If only we had a crystal ball. Unemployment remains high as we produce this issue, though the Bureau of Labor Statistics (BLS) reported a slowing of the jobless rate with fewer new claims for jobless benefits the week ending November 21, 2009-the lowest since September of 2008. Residential construction looks to be on the rise, commercial construction looks to continue to struggle, and increased activity in infrastructure and public works is the prediction and hope for 2010. In addition to economic news, embracing new technology and reassessing business practices of old are top recommendations for construction business owners.
Unemployment
According to the October 2009 Bureau of Labor (BLS) statistics, job losses on average in construction have slowed in the last six months (67,000 jobs per month) compared with the prior six months (117,000 jobs per month), bringing the total job loss to 1,104,000, a 15.6 percent loss for the period of October 2008 to October 2009. This loss represents 20 percent of jobs lost across all industries, and the total employed in construction is now 4.5 percent of the total workforce compared with 5.2 percent in October 2008. The construction industry's unemployment rate in October 2009 rose to 18.7 percent from 10.8 percent in October 2008. This is over 80 percent more than the nation's average unemployment rate reported in October 2009 of 10.2 percent.
The Associated General Contractors of America (AGC) reported in October 2009 that all but twelve communities saw declines in construction employment from September 2008 to September 2009. Phoenix, AZ reported the highest construction jobs lost at 35, 100, and Reno-Sparks, NV, reported the largest percentage decline of 35 percent. Thirty-eight communities saw construction employment declines of 20 percent or more. However, Stephen E. Sandherr, CEO of the AGC, noted that there were a few areas of growth including: Columbus, IN at 15 percent, Anderson, IN at 6 percent, Bismarck, ND at 3 percent, Tulsa, OK at 3 percent) and Baton Rouge, LA at 1 percent. Four cities saw no change.
Sandherr further recommended "that Congress and the Administration should act quickly on a number of key measures like extending the first-time home buyers credit and expanding the carryback tax provisions to cover net operating losses in 2009 and 2010 for all businesses."
[[{"type":"media","view_mode":"media_large","fid":"196","attributes":{"alt":"","class":"media-image","height":"170","typeof":"foaf:Image","width":"307"}}]]
Good News and Bad News
Though unemployment continues to be a serious concern, there are signs that the overall U.S. economy is beginning an upward climb. Sales of existing homes increased just over 10 percent in October 2009 to $6.1 million (the highest dollar increase since February 2007). The U.S. Gross Domestic Product grew 3.5 percent during the third quarter, and the stock market is currently rebounding (at this issue's publication date).
While there are signs of overall U.S. economic recovery, the construction industry progression toward recovery looks to be a longer climb than other industries. FMI Corp., a management consulting practice, released their third quarter 2009 report in late October stating that "total construction in 2009 and 2010 will be down 14 percent and 5 percent respectively." Some of what the report forecasts follows:
- A 25 percent decline in residential construction for 2009 with recovery in 2010
- A 13 percent decline in non-residential construction in 2009 and 16 percent in 2010
- An increase of 5 percent in 2009 and again in 2010 for non-building construction
- Project cancellation at five times the normal rate and at 10 percent of backlog which is twice the amount for the same period in 2008
- Power construction remains positive and is expected to reach $122.1 billion in 2013
Commercial construction remains a big concern. Foresight Analytics, a provider of real estate market analysis and forecasting, released their third quarter 2009 estimates on bank lending trends in late October. The total delinquency rate for construction loans as of the second quarter had reached 16.3 percent (this includes thirty plus days past due and nonaccruals). The estimate for the third quarter is 18.2 percent compared with a 9.6 percent delinquency rate in the third quarter of 2008. "Worsening fundamentals and reduced liquidity in the commercial real estate sector will likely contribute to further rises in the delinquency rate," the report further stated.
[[{"type":"media","view_mode":"media_large","fid":"197","attributes":{"alt":"","class":"media-image","height":"170","typeof":"foaf:Image","width":"307"}}]]
Infrastructure Investment
Last year's hope that stimulus-driven infrastructure investments would jump-start the construction industry continue to be a focus this year. The Associated Equipment Distributors (AED) and The Association of Equipment Manufacturers (AEM) are warning Congress that more jobs will be lost unless a multi-year highway law is passed, as they noted recently that "SAFETEA-LU, the most recent blueprint for federal highway spending, expired on Sept. 30, and neither chamber of Congress has yet voted on a new transportation bill." This bill has now been extended until the end of the 2009.
A consortium including the National Asphalt Pavement Association (NAPA), the American Concrete Pavement Association, the National Ready Mixed Concrete Association, the National Stone, Sand & Gravel Association and the Portland Cement Association is asking for a six-year highway-spending bill instead of extending the current one beyond this year. "The current lack of funding certainty in the federal highway market is having a devastating effect on the transportation construction industry," the consortium declared.
Jay Hansen, vice president of NAPA's government affairs, said that the floodgates for federal stimulus spending on highway projects are expected to open in 2010, but that is just a fraction of the billions of dollars states need.
The Transportation Construction Coalition (TCC) in Washington, D.C., conducted a survey of transportation contractors, and nearly 70 percent reported receiving stimulus-funded contracts work so far in 2009. However, 63 percent of those contractors also reported employee layoffs in 2009. The TCC points out that states had already been cutting back on transportation programs in the past few years.
Joy Wilson, president and chief operating officer of the TCC's National Stone, Sand & Gravel Association, said, " The repair or replacement of America's crumbling infrastructure requires vision, long-term commitment for multi-year projects that enhance safety and U.S. competitiveness; it is overdue but when enacted, will create American jobs not just in the industries who build roads, but in the industries and farms and businesses who depend on surface transportation to get their goods to market."
Many see that infrastructure construction remains a pivotal ingredient to rebuilding the economy and boosting the construction industry on many levels, from producer to distributor to contractor to user-both commercial and consumer. The decline in transportation efficiency is apparent with the visible decay of our roads and bridges-roads and bridges we depend on for our daily survival.
We will watch what happens on the federal and state levels regarding these proposed changes to jump-start infrastructure construction projects in hopes that this activity stimulates other areas of construction as well as the rest of the economy over time.
The Word from Leaders in the Industry
Our State of the Industry 2010 reports follow. We have asked a number of top executives from all areas of the construction industry-manufacturer and service providers-to tell us how they view the state of the industry from their business' perspective. As the industry moves ahead, key topics of interest center on technology and how swiftly contractors embrace and adapt to those technologies to reach a new level of efficiency. Building Information Modeling (BIM), lean production, document imaging, energy efficiency and LEED are a few of these new, evolving practices. How quickly contractors educate themselves and apply these new concepts and work habits will have a major impact on their growth and sustainability in the years to come.
We hope the insight from industry executives will offer you some ideas to improve your processes and procedures to tackle the continuing challenge and change occurring in this vital industry. Survival through these times will be about evolution-flexibility, change and adaptation.
