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Dec. Construction Jobs Fall; Industrial, Office, Apartment Markets Worsen

January 13, 2010
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Construction employment fell by 53,500 (-0.9 percent), accounting for more than 60 percent of total losses for December 2009, and by 934,000 (14 percent) for the year.

Seasonally adjusted nonfarm payroll employment fell by 85,000 (-0.1 percent) in December 2009 after rising in November (albeit by a statistically insignificant 4,000) for the first time since the recession began in December 2007, the Bureau of Labor Statistics reported Jan. 8.

Construction employment fell by 53,500 (-0.9 percent), accounting for more than 60 percent of total losses for the month, and by 934,000 (14 percent) for the year. Declines in nonresidential employment (-1.0 percent for the month, -15 percent for the year) outpaced those in residential (-0.8 percent and –12 percent).

Heavy and civil engineering employment, the segment most subject to winter weather anomalies, rose in November, which was reportedly warmer and drier than average, but paid back the gains and more with a steep 2.2 percent loss in December, which was colder and snowier than usual in many areas. In a small hopeful sign for future construction demand, architectural and engineering services employment rose by 4,000 (0.3 percent) for the month (but was down 95,000 or 6.7 percent from December 2008).

The unemployment rate was 9.7 percent overall, not seasonally adjusted (10.0 percent, seasonally adjusted), and 22.7 percent for construction, the highest of any industry. Average hourly earnings for production and nonsupervisory workers rose three cents overall to $18.40 in December, seasonally adjusted (up 2.2 percent over 12 months) and fell three cents in construction to $22.77 (up 1.6 percent over 12 months).

Construction Starts

Nonresidential construction starts fell 8.2 percent in December, compared to December 2008, and 6.9 percent for all of 2009, compared to 2008, Reed Construction Data reported Jan. 12, based on information it compiled. Building construction was down 27 percent and 17 percent, respectively. Starts on civil works (highways, bridges, water/sewage, dams/marine, airports and other) rose 27 percent and 16 percent, respectively.

Chief Economist Jim Haughey commented: “Nonresidential building starts weakened in December after a strong November. Usually, there is a seasonal upturn in December, so the 20 percent month-to-month decline is a significant weakening. There were relatively few starts of large developer-financed projects as well as a nearly 40 percent dip in hospital starts. Nonetheless, nonresidential building starts in December matched the monthly average for 2009.

“The December results for the civil market are distinctly different. December starts were unchanged from November and above the monthly average for 2009. Highway starts matched the November total. There was another large gain in water/sewer starts,” which reached a record level with a 20 percent jump in December.

Industrial, Office And Apartment Markets

Recent reports paint a bleak picture for industrial, office and apartment construction, as rents fell and vacancies rose in 2009.

“We saw a dramatic fall in [industrial] construction starting in 2009, as completed projects were not replaced by new ones,” Jared Sullivan, economist for CBRE Econometric Advisors (www.cbre-ea.com) wrote on Jan. 11. “With the situation in the capital markets still tenuous, it is unlikely that this trend will reverse itself in the near future…but there are still markets with the right industrial composition or logistical connections, where it may make sense to build if capital is available…this year will see the lowest levels of construction on record, dating back to 1980. With vacancy rates nationwide remaining elevated and rental rates falling, it will be some time before industrial construction rebounds in all but the healthiest markets.”

One healthy market is Boston, which “has held up relatively well compared to its five-year historical average, thanks to the market’s strong concentration of biotech firms. A diverse market, Boston’s construction pipeline has been and continues to be a mixture of R&D facilities, warehouses and manufacturing facilities.”

Office rents “declined in almost all of the 79 American cities tracked by Reis Inc., a New York-based research firm, in the fourth quarter of 2009,” the Wall Street Journal reported on Jan. 8. Nationwide, effective rents - the net amount tenants pay after landlord concessions - fell close to 9 percent, the largest decline since Reis began compiling data in 1981. The “vacancy rate rose to 17 percent, the highest since 1994.” Washington and New York had the lowest rates, 10.7 percent and 11.5 percent respectively.

“Apartment vacancies hit a 30-year high in the fourth quarter, and rents fell as landlords scrambled to retain existing tenants and attract new ones,” the Journal reported on Jan. 7. “The vacancy rate ended the year at 8 percent, the highest level since Reis…began its tally in 1980. Rents fell 3 percent last year, according to Reis, led by declines in San Jose, Seattle, San Francisco and other cities that had brisk growth until the recession…During the fourth quarter, vacancies increased in 52 markets, while they improved in 17 and stayed flat in 10. Vacancies increased most sharply for the year in Tucson, Charlotte and Lexington, Kentucky.

“Landlords were also hit last year by competition from a wave of new supply that hit the market. The 120,000 units that came onto the market last year, including some busted condo projects that had to be converted to rentals, represented the most new construction since 2003, according to Reis…The credit crunch has frozen most new development, which means that new apartment completions should fall by half in 2011.”

The Institute for Supply Management reported on Jan. 6. that purchasing executives in nonmanufacturing sectors were split on whether business activity improved from November to December. Executives in seven sectors (out of 18 total) reported growth but nine sectors, including construction, reported contraction. Construction was one of three sectors reporting an increase in order backlogs.

Four sectors, including construction, reported an increase in prices paid in December. Of items used in construction, copper, copper fittings, copper pipe and diesel fuel were reported up in price; no price declines were reported by respondents in any sector. Manufacturing purchasing executives reported price increases for aluminum, aluminum products and steel as well as copper in a survey released on January 4.

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