Construction Finds Recovery Slow

August 24, 2009
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Signed into law on Feb. 17, the American Recovery and Reinvestment Act (ARRA) promised new money and shovel-ready projects to stimulate America’s infrastructure and bailout - among others - the ailing construction industry. Six months later, how is the construction industry faring?

“The approximately $135 billion included in the stimulus for infrastructure has the ability to halt the virtual freefall in construction employment that has cost the jobs of over a million construction workers over the past 12 months alone,” said Stephen Sandherr, CEO of the Associated General Contractors of America (AGC). “The stimulus will keep our industry alive, but it will not turnaround a trillion dollar construction industry overnight. It is working; it just isn’t working fast enough for many construction workers in many communities.”

Sandherr based these statements on the recent study conducted by the AGC, where the organization found that of the 191 member respondents, 64.9 percent answered that zero to 25 percent of their workforce will work in one capacity or another on a stimulus-funded project. Approximately 17.8 percent said 26-50 percent would work on a stimulus-funded project, 7.9 percent said 51-75 percent, and 9.4 percent said 76-100 percent would work on a stimulus-funded project.

“Based on the study’s results, it is clear that while the stimulus is having some impact on the industry’s ability to save or retain jobs, it does not yet appear to have much impact on a company’s ability to hire additional workers,” said Sandherr in a July 30 conference call. “And while the stimulus is helping move some equipment and supply purchasing, the scope to date is less than impressive.”

CONSTRUCTION STATUS REPORT

Back in January of this year, Sandherr and the AGC forecasted a 30 percent job loss of non-residential construction workers without stimulus investments or other improvements to market conditions.

“Unless the business climate changes significantly and soon, the construction sector will continue to experience the kind of devastating job losses and crippling declines in business activity that will undermine efforts to end the recession,” he said in a Jan. 8 release.

In March, headlines were still grim in the construction industry as the unemployment rate continued to rise, registering 21.2 percent according to the Bureau of Labor Statistics (BLS). Ken Simonson, chief economist for the AGC, noted four major influences in construction economics during a March 9 presentation.

“The credit market freeze affecting private, state, and local borrowers; weak demand for income-producing properties; falling state spending; and no job growth are currently having great economic influence on the construction industry,” he said. “For 2009, I predict that non residential spending will finish at –3 to –9 percent; residential spending –2 to +2 percent; total construction spending to be –1 to –7 percent; materials costs –4 to 0 percent; and labor costs to finish at +3 to +4 percent.”

Employment rates continued to drop through April and May as the producer price index (PPI) and construction starts fluctuated month to month. When summer began this June, the construction industry reported the highest rise in unemployment rates as compared to the rest of the industries measured by the BLS. Posting at 17.4 percent, the AGC reported construction job losses totaling 79,000 for the month of June and 992,000 over 12 months. June’s construction spending was 10 percent below the same month in 2008; however, it registered 0.3 percent above May’s forecasted estimates.

In July, unemployment rates began to slow for the nation, but construction job losses continued at its same pace.

According to the AGC, although large amounts of money are being flushed into the economic system in the form of bonds and stimulus funds, some of those benefiting from these monies are concerned about spending them on large projects in the midst of a recession. Quick recovery has been further hampered by rising complications from the “Buy American” clause in ARRA. Some parts, supplies, and components manufactured strictly in Canada and other countries are necessary for projects, but don’t qualify for ARRA fund usage. While companies scramble to find other domestic suppliers, the projects go on hold, slowing down the recovery process.

Sandherr expressed his disappointment with the recovery pace during the AGC’s July 30 conference call. “Admittedly we are only five months into a multi-year stimulus program, but with construction unemployment at 17.4 percent, almost double the national rate, it is disappointing to see so many of these programs getting off to such a slow start, especially when so many construction firms have been able to turn dirt once contracts have been awarded.”

STIMULUS EXPECTATIONS

While the construction industry is experiencing delayed effectiveness of the stimulus bill, the HVACR industry is still endeavoring to find effective stimulus programs for contractors’ use that goes beyond tax credits for equipment upgrades. After surveying a small sample of HVACR contractors across the nation, The NEWS was hard-pressed to find any HVACR contractors currently working on a stimulus-funded project.

Apollo Heating & Cooling in Cincinnati has contracted to and have started to work on stimulus-funded projects. According to Jamie Gerdsen of Apollo Heating & Cooling, the company is in the process of hiring to assist with some of this work.

“Despite these facts, we have not really seen a huge effect in our business as a result of the stimulus,” he cautioned. “The tax credit availability has pushed up the efficiency levels, but the stimulus is not directly affecting our business.”

Rich Morgan of Magic Touch Mechanical Inc. in Mesa, Ariz., though not working on a stimulus-funded project, was able to rehire an employee inadvertently due to ARRA. “We laid off one individual last December. We rehired him as an installation manager in light of the sales stimulated by the tax credits,” he explained. “Aside from taking full advantage of selling equipment that qualifies for the tax credit, we are investigating work funded by the government in the weatherization field.”

Overall, the stimulus funds promised to the many trade industries across the United States have left some workers and business owners with high expectations, many of which have not been met. “As we have learned, [construction] contractors hoping to win stimulus-funded work expect a bigger contribution to their bottom line and hiring abilities than contractors actually doing some of the stimulus-funded work are experiencing,” said Sandherr. “You can’t fault contractors for being optimists, but unsustainably high expectations can bring down good policy and good programs.”

As for HVACR contractor Russ Donnici, CEM of Mechanical Air Service Inc. in San Jose, Calif., “The stimulus program has delivered exactly what I expected and that is not much but a bunch of talk so far. I hate to sound sarcastic, but whenever the government is involved in something they always overpromise and underdeliver.”

Several other HVACR contractors echoed his skepticism about the stimulus package, but still, many are taking advantage of everything available, no matter how small. A few contractors summed it up in one sentence, “It may not be much, but who knows where we would be with nothing at all.”

Publication date: 08/24/2009

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