ARLINGTON, VA-Construction employment rose nationwide by 20,000 in September from the month prior, bringing employment in the sector to a six-year September low of 8.5%. However, the Associated General Contractors of America says the strenght of the month’s gains may not be repeated when the October numbers come in, thanks in large measure to the government shutdown.
“The industry was doing relatively well before the federal government shutdown forced many firms to hit the pause button,” says Ken Simonson, the AGC’s chief economist. “But the shutdown likely disrupted a wide variety of projects and may have caused private investors and developers to delay decisions about new projects or plant expansions. As a result, future spending and hiring gains may be weaker.”
Year over year, the construction industry’s employment rate posted a sharp increase, with the jobless rate falling from 11.9% in September 2012 to last month’s level, the lowest September reading since 2007. Also up Y-O-Y was the aggregate weekly hours of all construction employees, which rose faster than the sector’s employment rate, indicating that companies are adding to existing workers’ hours along with hiring new employees.
Construction spending for August, the most recent month for which figures are available, was up 0.6% from an upwardly revised July figure and 7.1% Y-O-Y. Private residential spending led the way by far, with a 1.2% increase for the month and a Y-O-Y jump of 19%. Nonresidential construction spending by private developers, by contrast, inched up just 0.1% from the prior month and 4.3% from 12 months earlier. Public spending rose 0.4% for the month but fell 1.8% from a year ago.
“Only home- and apartment construction is booming,” Simonson comments. AGC is urging passage of water resources legislation that would spur “long-delayed repairs to our aging ports and waterways,” says association CEO Stephen Sandherr.
Broadly speaking, IHS Global Insights economists Stephanie Karol and Patrick Newport drew the same conclusions, calling the August construction spending tally “a respectable report” while noting that the headline figures “fall short of statistical significance.” The market and economic information provider’s conclusions about public-sector spending differed from the AGC’s, however, with IHS seeing a 3.2% Y-O-Y gain. “This is the second straight month of gains—we could be seeing the first signs of a turnaround in public construction,” write Karol and Newport.
Drilling down into the nonresidential private construction numbers, Karol and Newport saw “a mixed bag” for August. “As expected, spending in the healthcare sector has been anemic (flat month-on-month; down 6.5% since last August), as hospitals and medical buildings dithered ahead of the rollout of the Affordable Care Act,” they write.
That’s to be expected in ”a high-uncertainty environment,” according to Karol and Newport. “Infrastructure investment is heavily pro-cyclical; in a recession, spending on structures is often the first to take a hit, and the last to return. Hospitals and medical buildings will wait to expand until it becomes clear that they must do so in order to meet demand.” Accordingly, they predict, growth in this sector is likely to remain “feeble” until 2015.
On the other hand, the economists write, spending on lodging has been gaining steadily throughout the year. It has recorded “solid gains” on both on a monthly and yearly basis, thanks largely to declining hotel vacancies in many regions of the country.
“With this update, we now expect both nonresidential and nonresidential construction to post growth in the low teens for the third quarter,” Karol and Newport write. “These are badly needed gains in an economy that is wobbling.”