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Gobble, Gobble, Gobble. The Good News for Construction Workers

Posted by: Peter Coy on November 22, 2006

The housing market is a turkey, but construction workers have plenty to be thankful for this holiday. turkey.jpg Surprisingly, construction employment has fallen only a tiny bit by one measure and actually risen a lot by another. One explanation: Non-residential construction has taken up the slack from residential construction.

Here are the amazing stats, quoting a report yesterday from Goldman, Sachs & Co.

“Construction employment according to the establishment survey—which captures employees on company payrolls but excludes the self-employed—has fallen by a negligible 12,000 over the past three months. Construction employment according to the household survey—which includes both employees and self-employed workers—has risen by 292,000 over the same period. This has the startling implication that roughly half of the decline in the unemployment rate from 4.8% in July to 4.4% in October was due to employment growth in the construction sector!”

Read what the American Institute of Architects said today:

Following housing construction numbers from the Department of Commerce that dropped to their lowest level in over six years, the Architecture Billings Index (ABI), a leading economic indicator of construction activity, continued along the path of modest growth in October. Sustained demand for nonresidential projects should continue to offset the lagging housing market’s effect on the overall economy, and future growth in construction activity will come primarily from the commercial / industrial and institutional markets.

Things could be getting worse, though. Goldman, for one, is less sanguine about the future:

"However, we expect construction employment to weaken sharply over the next 6-9 months, with monthly payroll losses averaging 25,000-50,000. There are some early signs of deceleration in nonresidential construction; housing completions are due to fall sharply; and seasonally adjusted construction hiring will look very weak in the spring if employers simply fail to hire the workers now being idled in line with the seasonal norm."

Michael Englund of Action Economics says there's a simple, economic-textbook explanation for the strength of non-residential construction. Here's what he told me in an interview last week:

During the housing construction boom, homebuilders bid up the price of construction labor as well as building materials like copper and cement. Prices got so high that some non-residential construction projects became unaffordable, so developers put them on the back burner. Now, with residential construction slowing down, labor and materials costs are coming down, making non-residential projects affordable again. Says Englund:

"Try to find the unemployed roofer or cement truck driver."

Reader Comments

Nigel Swaby

November 22, 2006 9:34 PM

Thank you for pointing this out. All these bubbleheads say housing is going to crash and take the economy with it, but with an absence of high unemployment, a lack of housing appreciation is going to have little impact...similar to gas prices tripling with no impact on the economy.

I've postulated for some time that a slowdown in housing jobs will be absorbed by commercial construction. This just supports my theory.


November 27, 2006 11:12 AM

Just as the housing boom made the .com bust smooth sailing, the commercial boom will help offset the housing bust. Unfortunately Nigel, the commercial building can only continue for so long, there are only so many businesses that will be able to stay afloat. The construction that's going on right now is based on the economy boom of the last few years. Now that the housing atm is gone for quite some time, the cash isn't their for most folks to spend, spend, spend. Yes, commercial building will put a band aid on the current bust for a short while. What will save the commercial building bust?

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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