Despite many positives in the construction industry right now such as the high demand for skilled labor and that most construction firms are willing to prove higher wages for skilled workers, Alan Greenspan is pointing a finger of blame in construction’s direction.
We would like to thank Equipment World for this informative article on the Construction Industry’s Recovery
Slow Recovery
According to a report from Bloomberg, Greenspan, who served as chairman of the Federal Reserve between 1987 and 2006, said Tuesday the U.S. economic rebound from the recession that ended five years ago, has been held back by the construction industry’s own slow rebound.
“What we see is that construction is dead in the water,” he said, noting that, unlike the current recovery, every other recovery since World War II “was led by construction or longer-lived assets.”
It’s important to note that none of those recoveries followed a housing collapse as devastating as the one that occurred in 2008. As an Associated Press report from 2012 points out, credit “evaporated” with the Lehman Brothers collapse, housing prices dropped 30 percent and construction was brought to a “near-standstill.”
Things have improved slowly however, despite high demand in the wake of the recession, the construction industry has been slow to recover for several reasons.
Skilled Worker Shortage
One major reason for the slow recovery is the inability for most construction firms to find enough skilled workers. An Associated General Contractors and SmartBrief joint study released last month found that 63 percent of contractors had faced a skilled worker shortage in the past year with 30 percent saying they’ve had to turn down work because of it.
An encouraging stat from the study: 80 percent of those construction firms said they would pay more for skilled workers once they find them. The overall employment numbers are encouraging as well. In August the industry notched its eighth-straight month of job gains, adding 20,000 workers. The industry now employs the most Americans since May 2009 at 6.068 million.
Falling Wages
A recent Bureau of Labor Statistics study highlighted that while most of the skilled construction workers who lost their jobs in the wake of the recession have been rehired by the industry, 30 percent of them are making less money than they did before. Many of the workers these firms are seeking likely won’t return to the industry if they’ve found better paying jobs elsewhere.
Construction Spending
Construction spending hit a high point recently. The 1.8-percent gain in July was the highest monthly gain in two years and at an annual rate of $981.3 billion, total spending is up 8.2 percent year-over-year—the highest point since December 2008.
But these spending gains as of late have been largely due to nonresidential spending. Much of the fluctuation in spending over the last 12 months has been due to an uneven recovery in home building in addition to inconsistent government spending.
Housing Industry
According to the most recent data from the Commerce Department, home starts rose 15.7 percent in July to an annual rate of 1.093 million. That’s the second-highest level of the year and is up 21.7 percent over the last 12 months. However, as the Bloomberg report points out, that rate is still well below the 20-year average of about 1.35 million.
The shortage of skilled workers is not the only issue with housing’s recovery. Many Americans still can’t afford to buy new homes due to slow wage growth and tight credit. Greenspan says the bleak credit situation might continue as businesses have been discouraged from deploying capital due to “doubts about the future, including where tax rates will be.”
Despite all of this, homebuilder confidence has been on the rise in recent months. The National Association of Home Builders/Wells Fargo builder sentiment index hit 55 in August. Any reading above a 50 indicates most homebuilders believe market conditions are good. NAHB Chief Economist David Crowe attributed the improved outlook on sustained job growth, low mortgage rates and affordable home prices are “helping to unleash pent-up demand.”
Industry Recovery
AGC chief economist Ken Simonson called the industry’s recovery “pretty steady but awfully gentle” back in April when he and other prominent industry economists issued a mixed outlook for 2014. Noting concern over the several obstacles discussed above in addition to rising labor and “tame” materials costs, Simonson forecast between 6- and 10-percent growth for the year and through 2017.
This most recent recession has been much more difficult to recover from because it targeted the construction industry directly and much more directly than any other past recessions. While recovery has been slow, there are many reasons to remain optimistic about the industry such as the positive momentum of: job, spending and housing growth.
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