Warm Spots Poke Through Frozen Construction Landscape

Two indicators released in mid-December suggest construction has started to thaw in a few parts of the country. On December 17, the Bureau of Economic Analysis reported that although seasonally adjusted personal earnings in construction shrank nationally in the third quarter, construction earnings were positive in North Dakota, Alaska and New Hampshire and were unchanged in New Jersey. On December 18, the Bureau of Labor Statistics reported that a majority of states had an increase in seasonally adjusted construction employment from October to November. Construction employment rose in 26 states, fell in 23 plus the District of Columbia and was unchanged in Delaware. From September to October, construction employment climbed in only 17 states, fell in 32 plus D.C., and was unchanged in New Hampshire. Though the pickup in construction employment looks widespread, the November figures should be treated with caution for a number of reasons. First, most initial reports are subject to revision. Second, this November was an unusually dry and warm month in many states where highway contractors often have to stop work in November. Thus, the job gains may be only temporary, with the seasonal layoffs that usually show up in November occurring in December instead. Only eight states had back-to-back construction job gains in October and November: Kansas, 5 percent; West Virginia and Indiana, 4 percent each; Wisconsin 3 percent; Arkansas, Georgia and Ohio, 2 percent; and Massachusetts, with minimal gains in both months. Third, most of the improvement is probably related to residential construction. On December 22, the National Association of Realtors reported that sales of existing single-family homes, condominiums and co-ops in November rose 7.4 percent, seasonally adjusted, from October and 44 percent from November 2008. This welcome news suggests that demand for new homes is also on a solid growth path. With inventories of new houses already thin in some markets, residential construction should grow steadily in 2010. Nonresidential construction is unlikely to improve overall in most states in 2010, although stimulus funding will appear in greater amounts than in 2009. Also, states with base realignment or power projects (retrofits to power plants, wind farms or transmission lines) will get pockets of job gains.