Economy Takes Toll on Construction

The drop in construction employment accelerated in September and the situation will get worse unless credit markets reopen, says Ken Simonson, chief economist for the Associated General Contractors of America (AGC). Simonson was commenting on a Bureau of Labor Statistics (BLS) report that showed construction lost 35,000 jobs last month.

“State governments from California to Maine have been shut out of the bond market, while developers have had bank credit windows slammed shut on their finders as they reached for loans,” Simonson says. “All types of construction shed workers in September, following an uptick in nonresidential hiring in August. Another ominous sign is that architectural and engineering services employment—a harbinger of demand for future construction—rose until recently, but stalled this summer and fell in September.”

Simonson points out that the report only reflects payroll as of Sept. 12, before the takeover of mortgage lenders Fannie Mae and Freddie Mac triggered the current freeze in bank lending.

Compounding the bad news on employment is the report from the Census Bureau that private nonresidential construction spending fell nearly 1 percent in both July and August. “State and local spending was up, but I hear that will change as more states each week announce budget shortfalls,” Simonson says. “Highways and schools—60 percent of public construction spending—are in particular jeopardy because of drops in fuel and property taxes.”

Simonson says even private categories with the best chance of growth in 2009, such as power plants, refineries, hospitals and higher education, have slowed and risk losing access to affordable loans. “The 2009 construction employment and spending outlook will be very bleak unless credit markets revive promptly.”