Supply House Times

April 4, 2008 ― Construction, A/E jobs Slide

April 4, 2008
Contractors see weaker conditions as steel jumps yet again.

Nonfarm payroll employment fell 80,000, seasonally adjusted, in March, the Bureau of Labor Statistics (BLS) reported today. The drop, the third straight and the worst in five years, followed declines of 76,000 in January and February (revised from -22,000 and -63,000). Job growth over the past 12 months slowed to 536,000 (0.4%).

The unemployment rate jumped to 5.1% from 4.8% in February and 4.4% in March 2007. BLS Commissioner Keith Hall observed, “The construction industry lost 51,000 jobs over the month, with decreases concentrated in residential and nonresidential specialty trade contracting. Since its peak in September 2006, construction employment has fallen by 394,000….in manufacturing, there were job declines in several construction-related industries-wood products, furniture and nonmetallic minerals.”

The 12-month decline in construction totaled 356,000 (4.6%), the biggest percentage drop since 1992. Residential building and specialty trades fell a combined 285,500 (-8.7%) and nonresidential building, specialty trades and heavy and civil engineering construction shed 70,500 (-1.6%).

But BLS may still be understating residential job losses and overstating nonresidential losses. On Tuesday, the Census Bureau reported that residential construction spending fell 18.6% from February 2007 to February 2008. It is likely that the actual decline in residential employment was similar, or nearly 330,000 more jobs than BLS reported. The gap may be explained by electricians, plumbers and other trades who are still counted as residential specialty trade contractors but are working on nonresidential jobsites. Adding those jobs to the nonresidential total would produce a 12-month job gain of 260,000 (5.9%), a figure more consistent with Census’s estimate of an 11% spending increase over 12 months.

These “hidden” job gains could also explain why average hourly earnings in construction rose 4.3% from March 2007 to $21.59 per hour, seasonally adjusted, in March 2008, more than the 3.6% gain for all private nonfarm production or nonsupervisory workers.

Architectural and engineering services (A/E) employment, a harbinger of future construction, fell by 1,500 in March. In the past three months, that sector has added just 2,100 jobs, the lowest three-month total since 2003. The report was consistent with the American Institute of Architects’ monthly index of change in billings by architectural firms, which plunged to a six-year low of 41.8 in February from 50.7 in January and 58.8 in July 2007, AIA reported on March 18. (Breakeven between rising and falling billings is 50.)

The subindex for practices specializing in institutional construction moved up from 51.7 in January to 54.9 in February, but other subindexes fell: commercial/industrial from 54.5 to 40.6, multi-family from 55.4 to 46.6, and mixed practice from 51.3 to 43.9. (Subindexes are averages of the three latest months.)

Contractors appear to be gloomier than they were a few weeks ago about business prospects, but not uniformly so. Among 40 respondents to the “question of the week” accompanying the April 1 Data DIGest, the majority reported shrinking backlogs or current workloads, often because owners were having more difficulty getting financing or economic conditions had worsened.

But answers varied within regions: three California respondents said problems had not appeared yet but two others said they had. The San Antonio AGC chapter executive, a concrete fabricator in north Texas and a contractor in Tyler, 100 miles east of Dallas, said business was still good, but a Dallas-based engineering firm said, “We have been told several large commercial projects in the Dallas-Fort Worth area have been ‘put on hold’ due to finance problems.” The Carolinas AGC chapter executive said, “There seems to be some softening in our Carolinas market on the building side…I get the sense there is some uneasiness in spite of relatively strong construction activity currently in play for Charlotte, Raleigh, Charleston. Highway industry is worsening in its lettings. North Carolina highway contractors are now laying off employees. South Carolina as previously reported continues to be in dire straits….Utility work is holding its own.”

A survey of 20 contractors in the past 10 days by the Atlanta Federal Reserve Bank, which covers Alabama, Florida, Georgia and parts of Louisiana, Mississippi and Tennessee, found, “Most district contractors reported that commercial development during the first quarter declined compared with a year ago and activity was weaker than February reports. More contacts noted that backlogs were shrinking compared with a year ago as well. Pessimism grew among contacts from our survey in February. Contacts reported that availability of financing and tighter standards were delaying or cancelling projects. Several contacts noted that the bid process continued to become more competitive. Some contacts said they anticipate weakness to take a firmer hold in 2009.”

Steel prices continue to soar. A Minnesota-based construction-products manufacturer reported on Thursday that on April 1, 14-gauge zinc-coated steel sheet went from $0.415 per pound to $0.515/ lb. and 14-gauge cold-rolled steel sheet from $0.375/lb. to $0.510/lb, adding, “mills are already announcing another 8% increase for July.” A Florida-based steel supplier wrote on Wednesday, “We had been cautioned by the steel producing mills that May could have between $50 to $110/ton increases. I had personally thought it would be $80/ton. Now this seems conservative in light of a $155/ton upward spike in scrap prices.”

Gerdau Ameristeel wrote to customers on March 25, “Over the last three months, domestic producers have announced price increases of $105/ton for reinforcing steel. Recent activity in the scrap markets, plus the upward trend of alloy and energy costs, gives us reason to expect another increase of up to $100/ton in the next few weeks.” International Construction reported on March 28 that Volvo Construction Equipment is raising equipment prices by 5%.