First Word: The sky is not falling

When construction makes mainstream headlines these days, the focus is usually on home building and the message is negative: sales are sluggish, there’s a supply glut, housing starts are in the dumps. But when you consider the fact that residential construction spending has tumbled 27 percent compared to a year ago, according to the U.S. Census Bureau, yet total construction spending has decreased only 2 percent, and it becomes apparent the residential slump is masking impressive gains.

Almost every other segment of the industry is booming. The chief economist of the Associated General Contractors of America goes so far as to say construction is “sizzling.” In March, for instance, private nonresidential construction was up 17 percent compared to March 2006, according to the Census Bureau’s April 30 report. Spending on lodging construction was up 59 percent versus a year ago, office building was up 31 percent, multi-retail commercial structures saw gains of 23 percent, and spending on electric power, communication and hospitals was up 22 percent, 20 percent and 18 percent, respectively.

Public construction is also faring well. Spending increased 9 percent compared to March 2006, with the two biggest categories – highways/streets and education – up 11 percent and 9 percent, respectively. As further proof of the construction industry’s overall health, it accounted for one out of three new jobs in the non-farm sector in March, despite representing less than 6 percent of total employment.

If you’ve been in the construction business long, you probably recognize the trend of commercial building flourishing when residential falters and vice versa. One of our 2006 Contractor of the Year finalists, Bill Morris, a wise businessman who’s spent three decades in this industry, said he realized early on that the commercial market usually heats up when housing slows down. He diversified his business accordingly, and now has a firm footing in residential, commercial and industrial site preparation. It’s a smart strategy I recommend to all contractors.

Still, the current situation isn’t as dire as the evening news would lead one to believe. Even the sickly residential market seems to be convalescing. Single-family home construction actually edged up 0.1 percent in March compared to February. And the Mortgage Bankers Association reported the number of mortgage applications increased 0.3 percent in April.

Widespread fears that the bubble burst in the housing market would drag down the rest of the economy haven’t come to fruition either. The Dow Jones industrial average bounded above 13,000 for the first time April 25, and the S&P 500 topped 1,500 May 3 for the first time since the third quarter of 2000. Consumer spending has held steady regardless of predictions the housing situation would dampen it. Ninety-two percent of economists in a USA Today survey say higher gas prices haven’t had a big impact on the economy in the first half of 2007, and 78 percent don’t expect rising default rates among sub-prime mortgage holders to significantly affect economic growth.

In short, it seems as if the country has been trying to talk itself into a downturn, but, thankfully, to no avail. So if your business is doing well, tell people about it. Write your local newspaper. Construction is, after all, a good economic indicator when measured as a whole. And if, in this busy construction month, you hear or read yet another Henny Penny report forecasting doom and gloom based on home building figures, just keep on smiling. We can still savor the real story of our industry’s success.