DOT slows highway payments; states face budget cuts.

Seasonally adjusted construction employment fell by 8,000 in August and 437,000 (-5.7%) over the past 12 months, the Bureau of Labor Statistics (BLS) reported on Friday. The drop was the 14th in a row but the smallest in that span. Total nonfarm employment fell for the eighth straight month, by 84,000, and by 283,000 (-0.2%) since August 2007. Employment at residential builders and specialty trade contractors fell by a combined 19,000 for the month and 352,000 (10.9%) over 12 months. Employment at nonresidential builders, specialty trade contractors and heavy and civil engineering contractors rose 10,000 in August and dropped 85,000 (1.9%) over 12 months. But Census Bureau data and reports from contractors suggest BLS has understated residential job losses and that nonresidential employment has risen, not fallen.  Census reported on September 2 that residential spending fell 27% from July 2007 to July 2008.

There were even bigger drops in residential starts (-30%)  and building permits (-32%), Census reported on August 19, making it likely that residential contractors reduced employment by at least 27%, not 10.9%. The difference, roughly 520,000 employees, probably comprises workers at firms that originally identified themselves as “residential” specialty trade contractors but are now doing nonresidential work. If that number is added to the BLS estimate of nonresidential employees, nonresidential employment actually rose 435,000 (10%) over the past year, a number consistent with Census’ report of a 14% rise in nonresidential spending and with contractors’ reports of greater competition today from subcontractors that formerly did residential work. Such an adjustment also helps explain why seasonally adjusted average hourly earnings rose more in construction over the past 12 months (5.0%, to $22.05 in August 2008) than among all private production and nonsupervisory workers (3.6%, to $18.14).

In an abrupt about-face, U.S. Department of Transportation (DOT) Secretary Mary Peters announced on Friday that the federal Highway Trust Fund would not have enough money to make full payments to states for highway construction expenditures they had already incurred and submitted for reimbursement. She called on Congress to immediately pass a bill transferring $8 billion from the general fund. When the House passed such a bill in July, the White House had issued a veto threat.

The New York Times reported on Saturday that DOT “expects to have enough money to make all payments to the states for the second week of September but enough for only about 64% of the payments the third week, said Brian Turmail, an agency spokesman. Then, with a regular infusion of two weeks’ worth of gasoline-tax revenue from the Treasury, [DOT] will have enough money to make 88% of its payments in the fourth week of September-except that it will have to first make up payments it could not meet earlier in the month. Thus, as states wind down the busy summer construction season, their transportation officials can anticipate longer and longer delays in getting payments from Washington, Mr. Turmail said. State transportation officials expressed alarm. The money shortage will have ‘grave repercussions for the states, for hundreds of thousands of workers in the construction industry and the driving public,’ said John Horsley, executive director of the American Association of State Highway and Transportation Officials. Some AGC chapters reported that their state DOTs have already delayed contract awards.

State revenue shortfalls are leading some states to cut highway construction and other spending. The Washington Post reported today, “Maryland transportation officials plan to announce today the deferral of about $1.1 billion in transportation [projects] in a $10.5 billion capital plan for the next six years. The announcement…is prompted by lagging revenues in a separate fund for transportation projects. Two of those revenue sources, the gas and titling taxes, have slowed considerably because of higher gas prices and slumping car sales.” In addition, “Budget Secretary T. Eloise Foster said she plans to recommend at least $250 million in spending cuts next month” to the Board of Public Works. “Just weeks after more than half of the states closed shortfalls in their 2009 budgets totaling $48 billion, the budgets in 13 of those states have fallen out of balance again,” the Center on Budget and Policy Priorities reported on Monday. “In the six of these 13 states that have made specific estimates, the new gaps total $4.4 billion, or 4% of their budgets….The 13 states facing new, mid-year shortfalls for fiscal year 2009 (which began on July 1 in most states) are Arizona, Connecticut, Florida, Georgia, Illinois, Massachusetts Nevada, New Hampshire, New York, Ohio, South Carolina, Vermont, and Virginia.”

The value of nonresidential building starts jumped 28% in August, seasonally adjusted, but slid 4% year-to-date (YTD) for the first eight months of 2008 combined, compared January-August 2007, Reed Construction Data reported on Tuesday, based on data it compiled. Square footage fell 14% YTD. The value of civil project starts rose 4% in August but fell 5% YTD. “A number of large projects that Reed listed as starts in August drove the number up over July,” Reed said.

“The hiring pace in the construction sector is expected to remain unchanged…according to seasonally adjusted survey data” from the third to the fourth quarter, Manpower Inc. reported on Monday in its latest quarterly survey of 14,000 U.S. employers in 10 sectors. “A look at the hiring expectations from one year ago at this time indicates a considerably weaker employment outlook. Employers in the Northeast and the Midwest share the most favorable hiring outlook, while employers in the West indicate the weakest hiring plans.”