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Construction Spending Hits 11-Yr. Low, ARRA Added Jobs

July 6, 2011
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Construction spending in May totaled $753 billion at a seasonally adjusted annual rate, the sixth consecutive monthly decrease and the lowest figure since 1999, the Census Bureau reported July 1.

Construction spending in May totaled $753 billion at a seasonally adjusted annual rate, the sixth consecutive monthly decrease (following downward revisions to April and March data that initially both showed increases) and the lowest figure since 1999, the Census Bureau reported July 1. The May total was 0.6 percent lower than in April and 7.1 percent less than in May 2010.

Private nonresidential spending provided the only ray of light, with a monthly increase of 1.2 percent and a relatively mild year-to-year decline of 5.1 percent. The strongest results came from the largest subcategory, private power (power plants, renewable power sources, transmission, and oil and gas pipelines), which climbed 4.4 percent for the month and 11.5 percent year-over-year. The next largest private nonresidential category, commercial construction (retail, warehouse and farm), slipped 0.4 percent and 2.5 percent; followed in size by manufacturing, 1.8 percent and -20 percent; health care, -0.9 percent and -5.9 percent; and office, 1.3 percent and -12 percent.

Public construction fell 0.8 percent and 9.3 percent, with the largest subcategory, highways and streets, dropping 1.5 percent and 11 percent. Public educational spending declined 2.3 percent and 8.7 percent; transportation facilities, -1.9 percent and -16 percent; sewage and waste disposal, 4.2 percent and -10 percent; and water supply, -0.9 percent and -13 percent.

Private residential spending fell 2.1 percent and 6.6 percent. The largest subcategory currently is improvements to existing single- and multifamily structures, down 3.8 percent and 1.0 percent. New single-family homes slid 0.3 percent and 12 percent; new multifamily dwellings, -2.1 percent and -6.8 percent.

American Recovery and Reinvestment Act construction spending: Public investment outlays under the American Recovery and Reinvestment Act of 2009 - much of it for construction - totaled $162 billion as of March, the Council of Economic Advisers stated July 1 in its seventh quarterly report on the economic impact of the law. Outlays in the first quarter totaled $20 billion, down from $23 billion in the fourth quarter of 2010 and $33 billion in the third quarter.

“Little direct spending remains to be obligated,” the report commented. The Act “has raised employment relative to what it otherwise would have been by between 2.4 and 3.6 million.”

In a May 26 report, the Congressional Budget Office estimated that ARRA “increased the number of people employed by between 1.2 million and 3.3 million … CBO estimates that the employment effects began to wane at the end of 2010 and continued to do so in the first quarter of 2011.”

A May 2011 paper by Daniel Wilson of the Federal Reserve Bank of San Francisco, “Fiscal Spending Jobs Multipliers: Evidence from the 2009 American Recovery and Reinvestment Act,” found: “The estimates suggest ARRA spending created or saved about 2 million jobs in its first year and over 3 million by March 2011. Across sectors, the estimated impact of ARRA spending on construction employment is especially large, implying a 17 percent increase in employment (as of March 2011) relative to what it would have been without the ARRA.

“Looking across types of spending, I find spending on infrastructure and general fiscal aid had a large positive impact, especially on state and local government employment, while restricted aid to state governments to support Medicaid may have actually reduced state and local government employment.”

Construction employment: “Unemployment rates were lower in May than a year earlier in 274 of the 372 metropolitan areas, higher in 85 areas and unchanged in 13 areas,” the Bureau of Labor Statistics reported June 29. The national unemployment rate in May was 8.7 percent, not seasonally adjusted, down from 9.3 percent a year earlier. There were 201 metro areas with year-the-year increases in nonfarm payroll employment, 157 with decreases and 14 with no change.

Construction employment increased between May 2010 and May 2011 in 120 out of 337 metro areas for which data is available (including divisions of larger metros), declined in 162 and stayed level in 55, an analysis by the Associated General Contractors of America showed. (The BLS combines mining and logging with construction in most metros; unemployment data is not available by industry for metros or states.)

The Dallas-Plano-Irving metro again added more construction jobs (5,600 combined jobs, 5 percent) than any other area during the past year while Haverhill-North Andover-Amesbury, Massachusetts-New Hampshire, added the highest percentage (22 percent, 800 combined jobs). Other areas adding a large number of jobs included the Chicago-Joliet-Naperville, Ill., division (4,600 construction jobs, 4 percent); the Warren-Troy-Farmington Hills, Mich., division (3,700 combined jobs, 11 percent); Houston-Sugar Land-Baytown, Texas, (2,900 construction jobs, 2 percent); and St. Louis, Missouri-Illinois (2,700 combined jobs, 4 percent).

The largest job losses were in Atlanta-Sandy Springs-Marietta, Ga., (-7,400 construction jobs, -8 percent); Las Vegas (-7,400 construction jobs, -16 percent); New York City (-6,700 combined jobs, -6 percent); and Riverside-San Bernardino-Ontario, Calif., (-5,300 construction jobs, -9 percent). Lewiston, Idaho-Washington (-18 percent, -200 construction jobs) lost the highest percentage, followed by Las Vegas; Monroe, Mich. (-300 combined jobs, -15 percent); and Bend, Ore. (-15 percent, -500 combined jobs).

“The first year of wage and benefit settlements reported to the Construction Labor Research Council so far this year averages $0.98 or 1.8 percent,” the Council stated in June, “higher than the $0.55 or 1.1 percent at this time last year, but lower than the $1.49 or 3.1 percent reported two years ago.

“Similarly, years two and three in settlements negotiated to date this year are higher than years two and three last year, but lower than two years ago … At the extremes, 9 percent of the settlements were for no increase while less than 3 percent of the settlements were greater than 4.0 percent ... To date, 45 percent of the settlements have been for one year … Three years continues to be the most common duration for newly negotiated contracts.”

View state construction employment tables for May.

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