Construction Employment Edges Up as Stimulus Funds Begin to Reach Nonresidential Construction
May 10, 2010

Employment in construction and manufacturing sectors edged up in April, according to the employment report released by the U.S. Bureau of Labor Statistics on May 7.

Ken Simonson, chief economist with the Associated General Contractors of America (AGC), attributes such increases to, among other things, the fact that “the impacts of the stimulus [act] are now being felt across a much broader section of the construction industry.”

BLS reported that the number of unemployed persons in April was 15.3 million, and the unemployment rate edged up to 9.9 percent. The rate had been 9.7 percent for the first three months of 2010. Manufacturing sectors added 44,000 jobs in April. Since December 2009, factory employment has risen by 101,000. Over the month, gains occurred in several durable goods industries, including fabricated metals (9,000) and machinery (7,000). Construction employment likewise edged up (14,000), following an increase of 26,000 in March. Over the month, nonresidential building and heavy construction added 9,000 jobs each.

“The dramatic construction job losses have stopped and our industry is, at least temporarily, again adding jobs,” commented Simonson during a conference call on the report.

Simonson pointed to the stimulus act and its “estimated $135 billion in construction and infrastructure investments” as one of the reasons construction contractors are seeing more work this spring. Although he said the impact of the stimulus until now largely has been “too limited and, frankly, too little,” Simonson added, “Starting this spring, however, things have begun to change … Indeed, nonresidential construction – the area most likely to be impacted by stimulus spending – added 24,600 jobs in April and 36,500 jobs in March, the first two gains since the beginning of 2008.”

He added, “Nonresidential building and specialty trade contractors – the other nonresidential categories – have also added workers.”

Despite the positive news, many general contractors continue to face increased competition, unemployment and “dry” commercial construction markets.

“We have a lot of contractors searching for anything and everything they can find to stay busy,” said Ted Aadland, chief executive officer (CEO) and president of Aadland Evans Constructors in Portland, Ore.

Aadland also noted that, in his area, the potentially promising markets for alternative energy projects aren’t seeing the hoped-for financial incentives. “We’ve had some changes in the tax credits that finance both wind and solar and it’s had a large effect on start-up projects,” he said. “We’ve had two or three projects get put off indefinitely because we can’t find companies that are willing to buy tax credits with the new changes in the tax credit business. Now they’re requiring that companies pay minimum tax and the difference that they have in tax is not great enough to finance some of these alternative projects so we’re seeing some of that work disappear.”

Mark Hall, president of Hall Construction, a general contractor in Howell, N.J., specializing in historic restoration and school construction projects, noted, “We here in New Jersey now have 29 percent unemployment. It’s not unlikely to see 20 to 30 bidders on every project that we bid. Jobs are going not only at-cost but below-cost in some cases,” Hall said. He offered an example of a high school in the Atlantic City school district put out to bid as a $40 million project on which they had a referendum. “The bids came in at $26.4 million. We bid the job at cost and we were the ninth bidder,” Hall said.

Still, he turned that dour scenario into a call for encouraging quick allocations of stimulus funding.

“Today is the best time for the U.S. government—federal, local and state governments—to put work out on the street because they’re going to get the best value for their money right now,” Hall said.

Marco Navlet, senior director of McKinstry Construction in Seattle, noted that McKinstry had at one time worked solely on private projects, never federal, “but that changed quite a bit here in 2009 … the commercial sector truly has dried up.”

He explained that several factors moved his company toward federal projects to educate other contractors who may be considering such a move.

“We were very successful in changing our thoughts about federal contracting,” he said, explaining the several factors that prompted this change. “First, the private sector didn’t have project financing and developers were pulling back and on the sidelines, whereas the stimulus and recovery act projects were fully financed. Second, the type of projects that were funded were pretty much what we were doing--these were major facility renovations and rehabs, high-performance, green buildings, projects that were going to reduce energy cost, improve lighting and ventilation. Third … of the five major projects that we chased we were successful in getting an award on four of them, and it was under a different procurement model that the federals had not really done for these types of buildings: design-build. Selection was based on best value. So there was limited competition because the risk was pretty high.”

The contractors on the AGC conference call noted that stimulus funding is still available for nonresidential construction projects. According to Simonson, GSA is one federal agency that has only in recent months begun putting projects out to bid. He further explained that while highway funding already has been obligated and many of those jobs are underway or nearing completion, the federal government is “far from” having allocated all of the available funding.

He offered an example from another industry, saying, “For instance, with the so-called high speed rail funding, the president announced the projects that were to be funded on January 29 but in many cases the awards were far less than the states had proposed … so even when a state apparently won a project it had to re-tool the design in order to fit the available state and federal funds, so I think it will be many months before that category of money turns into actual construction projects.”

According to Simonson, “The good news is the stimulus has stemmed the losses in construction employment for now. The bad news is that the stimulus is temporary, while the construction downturn will be protracted. I don’t expect demand for new office, condo or manufacturing construction to begin to grow until later in 2011. And state and local construction spending is unlikely to grow until at least 2012. At the federal level, it looks increasingly likely that the sequel to the stimulus will be the kind of deferred investments that were all too common before last year.

“Adding forty thousand new jobs in two months is encouraging news. But with nearly 2 million construction workers still unemployed our industry’s recovery is far from certain,” Simonson said.

CLICK HERE to read the full April 2010 employment report.

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