Simonson Says

The construction industry ended 2012 with a small uptick in employment and the first gain in spending in six years. Early indications suggest that the upswing will continue in 2013, but the recovery will remain fragile and fragmentary, by segment and region. Construction employment in December totaled 5,564,000, seasonally adjusted, an increase of 30,000 from November but only 18,000 higher than in December 2011. The industry alternated small gains and losses in jobs all year, although the December increase was the largest monthly pickup since employment bottomed out in January 2011. The December total is still only 2 percent higher than the trough and is 28 percent below the peak reached in April 2006. Construction spending has been much more robust. The latest data, from November, show an increase from the trough of 15 percent. Spending rose for seven consecutive months before dipping in November. The first 11 months of 2012 combined, total construction spending exceeded the year-ago total by 9 percent. Private residential and nonresidential spending were each 16 percent higher while public spending was 2.2 percent lower. For 2013, the two private components should each rise another 10 to 15 percent, with public construction slipping another 1 to 5 percent. That would raise total spending 5 to 10 percent above 2012 levels. Improvement will be uneven, however. Recent reports from the Census Bureau on single- and multi-family housing starts and permits suggest the strong growth in residential construction recorded in recent months will continue in the first half of 2013. The “permanent” extension of most federal income tax rates and relief from the alternative minimum tax for all but the highest-income taxpayers should give many businesses the certainty they need to proceed with investments they had postponed in late 2012. Private nonresidential activity will be strongest in power and energy, manufacturing, transportation and warehousing, data centers, higher education and, perhaps, hospitals. But retail and office activity is likely to be limited in most regions to renovations rather than new construction. In contrast to the favorable private-sector outlook, federal funding for construction appears to likely undergo further cuts in coming months. In addition, still-shrinking property tax receipts for school districts and local governments mean further declines are likely in school and higher education construction, along with most public building and infrastructure categories. However, the enactment last summer of a two-year federal-aid highway bill, plus an expansion of public-private partnerships in some states, should keep highway construction spending from dropping. Until now, contractors have achieved greater output with nearly the same workforce by shifting workers from office and maintenance work to construction, lengthening the workweek and achieving productivity gains through methods such as building information modeling. In 2013, contractors will have to start adding significant numbers of workers, at last, to achieve further output gains. In 2012, fewer than half the states added construction workers. Employment gains should become more widespread as 2013 proceeds. States with lots of natural gas and oil drilling, such as Texas, North Dakota, Pennsylvania, Ohio and Colorado, are likely to have above-average increases in construction employment. At the other extreme, states that depend heavily on federal government spending for military or civilian construction, will lag: New Mexico, Alaska and Virginia, for instance. In short, 2013 will bring luck to more contractors, but certainly not all.