A recent spike in public construction spending masks some worrisome trends, according to industry insiders.
At first glance, recent statistics from the U.S. Census Bureau on public construction spending offered some surprisingly good news, but a closer look revealed a picture that insiders said remains worrisome — albeit hopeful.
A “rare spike” in public construction pushed spending in the third quarter of 2013 to its highest level since May 2009. Much of the increase was attributed to spending on highway and street construction and education construction, said Ken Simonson, chief economist of The Associated General Contractors of America.
“Nearly every category of public construction increased in October,” Simonson said.
But while public construction spending jumped 3.9 percent for the month of October, the overall spending for public construction still trails 2012 by 2.8 percent.
Meanwhile, residential construction slipped 0.6 percent for the month, but still showed a 17 percent gain over 2012, while nonresidential construction spending was down 0.5 percent for the month, but up 0.8 percent for the year-to-date.
“The private residence construction is certainly a mixed bag,” Simonson said. “It’s down because of slow down in single family construction, but multi-family construction continues to race ahead.”
Single family construction was up 30 percent compared to the first 10 months of 2012, but that remains low when compared to the historical high.
“The big question is will it flatten out, or keep rising to where it was historically,” Simonson said. “In terms of starts, historically it was around 1.5 million. Right now it’s around 800,000 starts.”
There also was a sharp decline in the private non-residential side in what the Census Bureau calls power construction, which includes power plants, wind turbines and solar energy, as well as everything in oil and gas on shore. That market was down in October and on a year-to-date basis, dropping 5.8 percent for the first 10 months of 2013 compared to 2012. But Simonson expects it to do well in 2014.
Other non residential construction spending was up.
“It really is a very mixed story depending on whether you are looking at public, private residential or private non residential,” Simonson said. “We don’t want people to assume that just because public construction spending was up for one month nothing else needs to be done. On the contrary. This was a fluke. That’s why we called it a rare spike.”
The hopeful news on the horizon lies with the U.S. Congress, Simonson said. Both houses have passed a version of the Water Resources Development legislation, and are now at work in a conference committee to iron out the differences to come up with a bill that is palatable to both chambers.
“They are pretty close to the finish line,” Simonson said.
The bill would give the U.S. Army Corps of Engineers the go-ahead for much more dredging and other improvements in ports and harbors that are necessary for them to take advantage of the increased flow of large ships that is expected to come with the expansion of the Panama Canal. The expansion project includes the construction of two new locks on the canal — one each on the Atlantic and Pacific sides, and is expected to double capacity of the canal. It is set to be completed by 2015.
“Once the wide, deeper channels are open, then much bigger ships such as container ships, but also tankers, will be able to pass through the canal,” Simonson said. “This will improve U.S. trade, but only if the ports can handle the deeper and longer ships, and most of the ports on the east coast need to have channels dredged deeper to accommodate these ships.”
The Water Resources Development legislation also would allow for improvements along Mississippi River system for barges. That would allow the United States to export grain and coal more effectively, and distribute inbound traffic more efficiently, Simonson said.
The AGC also is calling on Congress to make surface transportation a priority.
“In general, what’s been going on is that the federal government has been cutting spending,” Simonson said. “The federal government is putting less money into infrastructure, and state and local government is also cutting infrastructure spending.”
If it continues, Simonson said, “It means that we’re likely to have, unfortunately, quite possibly more passenger rail derailments, more cases of roads closed to all vehicles or heavy cargo vehicles or possibly more bridge collapses. It is a constant threat to the livelihood of construction companies and their workers.”
**Sidebar**
Employment Rise Falls Short
Construction employment has been inching up, gaining 400,000 jobs since the low of January 2011, but the recovery has not been nearly as fast as the industry would like and that could bode poorly for the future, said Simonson.
Between January 2011 and October 2013, about 400,000 workers were back on the job. But that’s a fraction of the 2.3 million jobs lost between 2006 and 2011.
“If demand does pick up in next few months, there may be a significant shortage of workers, delays in projects and a considerable rise in wage rates,” Simonson said. He expects to see increased demand in areas such as petrochemical plants, apartments and other types of manufacturing construction.
“While we’ve only had a small increase in employment, we’ve had a lot of people leaving the construction industry,” he said. “The number of unemployed construction workers has declined by about 1 million. Most of those unemployed workers have either been hired in other industries or have gone back to school or retired. They are not sitting at home waiting a for contractor to call them back to their old job.”
One of the major drivers of the construction job increase is the so-called “shale gale” sector, where “fracking” is happening in North Dakota, rural Pennsylvania and sections of Texas, Simonson said.
“Those areas are particularly hungry for construction workers,” he said. “There’s just been a tremendous surge.”
The past year saw construction job increases in 39 states, the most seen in over a year. But only two states, North Dakota and Louisiana, have surpassed their previous peaks. Both are at record peaks and both are related to oil and gas stores. All the other states except Texas remain at 10 percent below their peak.
Lori Tobias
Lori Tobias is a journalist of more years than she cares to count, most recently as a staff writer for The Oregonian and previously as a columnist and features writer for the Rocky Mountain News. She is the author of the memoir, Storm Beat - A Journalist Reports from the Oregon Coast, and the novel Wander, winner of the Nancy Pearl Literary Award in 2017. She has freelanced for numerous publications, including The New York Times, The Denver Post, Alaska Airlines in-flight, Natural Home, Spotlight Germany, Vegetarian Times and the Miami Herald. She is an avid reader, enjoys kayaking, traveling and exploring the Oregon Coast where she lives with her husband Chan and rescue pups, Gus and Lily.
Read more from Lori Tobias here.
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