Tough Time for Construction

February 16, 2010

Tomorrow marks the one-year anniversary of President Obama signing the American Recovery and Reinvestment Act, which included an estimated $135 billion dedicated to a host of construction activity. "The legislation held great promise for a construction industry that was just beginning to feel the pain of our sharp economic downturn," said Ken Simonson, chief economist with the Associated General Contractor of America. "In the past 12 months since the stimulus was enacted conditions have gone from bad to worse. Construction spending has declined by $100 billion prompting nearly 1 million layoffs on top of the 1.1 million that had already occurred. Today almost 1 in 4 construction workers are unemployed and many once driving firms are wondering if 2010 will be there last year in business. But as dire as conditions are in the industry, things would have been much worse without the stimulus. Taken on the basic measure of whether stimulus has helped the economy and supporting jobs: yes."

Simonson, along with several contractors, discussed the impact of the Stimulus during a conference call held this afternoon. And while there has been speculation over the past year as to whether the Stimulus would indeed help the construction industry, those on the call today said it indeed has helped them.

"The stimulus is saving construction jobs, driving the demand for new equipment and delivering better and more efficient infrastructure in the economy," said Simonson. "The latest federal employment report showed that heavy and civil engineering remained stable in the past month while total employment declined by 75,000. Given heavy and civil engineering are the categories that have seen the most stimulus benefits so far it shows the stimulus has really made a difference compared to the other categories that have not gotten stimulus money."

So, if the Stimulus was such a success why is so much of the construction industry, particular the architectural segment, suffering from low unemployment levels?

"The sad fact is that overall declines in construction demand overwhelmed the benefits of the stimulus," said Simonson. "While the stimulus made $135 billion available for construction, those funds were spread out over several years. Worse, questions about 'buy American' provisions and the fact that federal and state contracting officials were overwhelmed by having more money than they could get out promptly has slowed the distribution of non-transportation stimulus funds. As a result the benefits of the stimulus in 2009 were concentrated in road construction."

However, Simonson quickly pointed out the bright side, explaining that the delays in construction spending other than transportation in 2009 means there should be significantly more stimulus opportunities for contractors in 2010.

"We expect many more construction projects to come online, especially for building contractors. Work will provide a much-needed lifeline for contractors allowing them to retain many of their workers," said Simonson. "Current trends in private sector and local and state government construction demand, however, mean the stimulus is unlikely to change current construction employment levels. With that said, the Stimulus will keep a bad situation from deteriorating further … the best way to guarantee that construction job are preserved is continuing to fund infrastructure investments; these are not just creating short-term construction worker and supplier jobs, but are adding to the nation's stock of infrastructure that will page dividends and higher productivity competiveness and safety for decades."

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