Hopeful Glimmers of Construction Recovery

Gains will slowly spread but with waning government spending and sluggish commercial-propery investment, improvement should be spotty

There are some hopeful signs for construction, even though the topline figures for spending and employment remain at depression levels, according to Associated General Contractors Chief Economist Ken Simonson. Some sectors and regions have turned positive.

On April 19, the Census Bureau reported that seasonally adjusted multifamily starts in March jumped 28% from a year earlier. February starts also posted impressive year-over-year gains of 54%, showing that the March result is not a one-time fluke.

Another category that has posted continuing improvement is warehouse construction. Census reported on April 1 that warehouse construction spending rose in February for the fourth straight month. Rising exports, imports, domestic sales, and a growing consumer preference for online sales that are fulfilled from giant distribution facilities should keep demand for warehouse construction growing.

Manufacturing construction also appears poised for gains. Manufacturing industrial production and capacity utilization have each risen for nine straight months through March, the Federal Reserve reported on April 15.

Another tentative "green shoot" came from the National Association for Business Economics, in its quarterly survey of 50 corporate economists reported on April 18. On balance, more companies plan to increase than decrease investment in structures over the next 12 months.

Construction employment is still stuck in neutral at best, but about one-third of states are adding jobs, and one has reached a new high. Nationally, construction employment fell by 1,000, seasonally adjusted, between February and March and by 36,000 (0.6%) over the past 12 months, the Bureau of Labor Statistics (BLS) reported on April 1. Nevertheless, 16 states and the District of Columbia had net gains in construction employment since March 2010. The leaders were Tennessee and Texas, which each added more than 6%. North Dakota became the first state to set a construction employment record, as it added 800 jobs over the year to reach a total of 21,900 in March, 100 more than its previous high in October 2009.

Going forward, it looks as if construction gains will slowly spread through more sectors and states. But with declining government spending on infrastructure and sluggish private investment in offices and retail, the improvement will remain spotty at best.