2009 a difficult year but ‘devastating’ to the construction industry

It’s no secret that it’s rough out there. It’s been that way for a while now.

But in the construction industry, we’ve been one of the hardest hit job sectors. While only 5 percent of the U.S. workforce, construction workers shouldered 20 percent of non-farm layoffs last year, Stephen E. Sandherr said in the Associated General Contractors of America (AGC) 2010 Construction Industry Employment and Business Forecast Jan. 20. Better Roads participated in the call.

Conditions are going to remain tough for our industry. “While 2009 was a difficult year for much of the U.S. economy, it was simply devastating for the construction industry,” Sandherr said during the call. “Unfortunately for the industry and for our economy, this year’s construction outlook is far from positive. As long as the construction industry remains mired in its own depression, broader economic and employment growth will continue to lag.”

(For Better Roads’ exclusive 2010 Forecast, in which contractors and agencies show no signs of surrendering to economic pressures that in turn show little sign of easing their assault, click here.)

Construction spending declined last year by $137 billion,and is now at the lowest level in six years, Sandherr noted.

Based on responses received from nearly 700 construction firms nationwide in late December and early January to an AGC survey, 88 percent of them don’;t expect overall business conditions to improve until at least 2011.

Why? Because few contractors expect privately funded construction projects, which typically account for the bulk of annual construction activity, to improve, Sandherr said.

And without a new highway bill–the extension of SAFETEA-LU expires at the end of February–the situation is just exacerbated. 

Nearly nine-in-ten contractors say there will be no recovery in 2010, according to the AGC survey,

As a result, fewer contractors plan to purchase construction equipment and after a year of near-record industry layoffs, many doubt they’ll be able to hire new staff this year.

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The number of firms expecting to buy new equipment is down to 46 percent this year from 61 percent in 2009. Meanwhile, 81 percent of firms report already having to cut profit margins in their bids just to stay competitive and another ten percent say they are now submitting bids so low they will actually lose money on the projects.

Sandherr added that many construction firms are uncertain that they’ll be able to add staff following a year of record layoffs. In 2009, 73 percent of firms said they laid off employees, averaging 39 layoffs per firm. For 2010, however, 60 percent of firms say they are unsure whether they will be able to add new staff, or be forced to make further cuts. “Perhaps they can’t imagine who else to let go,” Sandherr noted.

Bright spots

One of the relatively few bright spots for the industry was the federal stimulus. Thirty-one percent of contractors say they were awarded stimulus funded projects. Of these, 46 percent say the stimulus helped them retain an average of 24 employees each. Another 15 percent say the stimulus helped them to add an average of 10 new employees per company while 12 percent cite the stimulus as driving new equipment purchases.

Sandherr added that the stimulus is driving up expectations for publicly-funded construction activity in 2010. He noted that 62 percent of contractors expect the highway market to improve or remain stable, 61 percent say water and sewer construction will improve or remain stable. And 55 percent say work on public buildings will improve or remain stable in 2010.

The stimulus is finally beginning to have a measurable, but limited, impacton the construction industry,”” Sandherr noted. “The full impact of those investments has sadly been tempered by the inability of Congress to put a host of multi-year infrastructure funding plans in place.”

However, Sandherr says that the stimulus isn’t a “panacea but a primer at the pump.”

It provides opportunities to expedite the flow of money out to the field,” he said. “[But] remember, 70 percent of all construction work is financed in the private sector. The stimulus only provides partial relief.”

When a member of the media asked whether a second stimulus was needed, a Federal Highway Administration (FHWA) representative quickly said, “Definitely.” “I’m talking highways only, but it will significantly increase most state’s budgets. Most states are looking at budget shortfalls, so it would just keep them [the states] at their current funding levels.”

In addition to stimulus-funded projects, contractors also are relatively upbeat about prospects for power and hospital/higher education construction, according to AGC. Fifty-two percent expect demand for power facilities to be at or above last year’s levels while 57 percent of contractors expect growth or stability in demand for hospital and higher education construction.

Overall, however, the outlook points to another difficult year for contractors, Sandherr said. The only truly good news, he added, is that construction costs remain at multi-year lows, providing good deals for anyone willing to begin a construction project.

Citing examples like a D.C.-area county that is increasing its capital budget in lightof the “limited time sale,” Sandherr said the association was contacting Congressional and Administration leaders to urge them to invest in new construction activity. “If they act now, they can save taxpayers millions on construction costs while immediately boosting employment and economic activity,” Sandherr said.

Click here for the prepared remarks from Stephen Sandherr:  2010 Forecast Call Remarks

For the press release on the AGC 2010 National Construction Hiring and Business Forecast, click here.

Click here to view AGC’s 2010 National Construction Hiring and Business Forecast.

Click here to view AGC’s State-by-State Construction Hiring and Business Forecasts for 29 states.