Construction work bolstering economy

By Sue Kirchhoff
USA Today

The building of new homes, such as this one under way in the Lake Claire neighborhood of Atlanta, has been fueled by low interest rates. Construction jobs have become a linchpin of the U.S. economy, analysts report. Advertiser library photo • December 2002

The source? It's not some sexy new-wave technology, but the old-school building trades.

Construction has been the Rodney Dangerfield of the economy here and in many other areas of the nation — especially in the past year — expanding with impeccable timing but getting little respect from career counselors or development gurus.

Unlike past recessions when construction fell harder than other industries, it largely held its own through the 2001 downturn, driven by low mortgage rates and a soaring housing market.

While other U.S. blue-collar fields lost ground in 2003 — manufacturing payrolls fell by about 700,000 — building trades started creating tens of thousands of jobs. Those numbers wouldn't be much to brag about in an average recovery but are notable given historically lackluster job creation.

"I'm coming out of the electronics industry in New Mexico. The competition is really fierce," says Dennis Martinez, 34, an electrician's apprentice, while studying a wiring text at the Albuquerque Technical Vocational Institute. "I'm looking at something more marketable."

Construction isn't the biggest job driver here or across the nation. But it has been an unexpected help. During the 1974-75 recession, construction payrolls fell nearly 12 percent. In the milder recession of the early 1990s, they dropped more than 9 percent. But construction employment kept pace in the recession year of 2001, dipped 1.6 percent in 2002, not seasonally adjusted, and started moving back up last spring.

From February 2003 to February 2004, construction employment rose 128,000, not seasonally adjusted, while net job gains in all U.S. industries totaled 113,000. The growth has been fastest in the South and West — including an almost 3 percent rise in New Mexico in 2003 and 4 percent to 5 percent growth at an annual rate in the second half of the year.

"Folks don't look at construction as a contributor to the economy. They think it happens only if other things take place," says Mike Sivage of Sivage Community Development, noting that building in New Mexico helped lead growth rather than following the job market.

"If we had gone by the same rules (as in previous downturns), none of us would be building anything now," Sivage says.

The U.S. Labor Department predicts construction will be the only part of the economy's goods-producing sector, including mining and manufacturing, to expand from 2002 to 2012.

Shorter term, the forecasting firm Global Insight predicts construction will be one of the nation's top 10 job producers from mid-2003 through 2005, with annual wages averaging about $42,000. Because it didn't decline as much when the economy was slow, it won't expand as fast as in other recoveries.

"It's not the most important factor, but it's been a big boon to local economies," says Jim Diffley, Global Insight managing director, who has forecast 2 percent expansion this year and next. The outlook could change, given a recent run-up in prices for steel and other building materials.

Construction is just one part of the story in this state, which has been one of the nation's better economic performers. Federal defense spending has been a big factor, buoying the Los Alamos National Laboratory and Sandia National Laboratories.

Construction employment fell in New Mexico in 2002 as two major one-time projects — a building for Intel and a highway interchange — wrapped up. But it has come back. Even without the major projects, construction is nearing 2001 levels and is ahead of the 1990s.

Washington has helped the industry. The Federal Reserve's decision to cut short-term interest rates helped reduce mortgage rates. Home building has surged since 2001, while commercial office building plummeted.

Some economists warn that construction growth has been bought at the price of an overheated housing market — "a bubble" that could burst and harm the economy. Median housing prices nationwide rose nearly 8 percent from the end of 2002 to the end of 2003.

In a recent advisory, investment firm Bridgewater Associates said the recent surge in home prices is "far and above anything we have ever seen in history," remarking that the home-buying fervor "looks and feels more and more like a bubble."

Others, including members of the Fed, say individual markets could be overpriced but discount the notion of a national bubble.

Rick Davis, president of R. Davis Cos. in Albuquerque, says demand could falter, but he doesn't expect it to crash if rates rise.

Other analysts, such as forecasting firm Economy.com, expect any weakening in construction to be short term, with commercial and public works taking up slack as home building declines.

"Last year was our biggest by about 35 percent. Our employee growth is about 30 percent," said James Giannelli, president of RMCI in Albuquerque, which builds infrastructure projects. "We actually see some pretty serious growth in the next two years."

Giannelli says a shortage of skilled workers is a chronic problem; immigrant workers are relied on to fill the gaps.

Median wages for construction and mining workers, at $27,000, are above the state's median wage of about $24,000. The median for electricians is $37,000; for carpenters, $30,000; and for steelworkers, $36,000.

Construction is dirty, often dangerous work. The unemployment rate is often higher than the national rate, partly because of lag time between jobs.

Some critics accuse construction firms of using immigrant workers to keep wages lower for tough jobs.

"I still love it ... (but) maybe the industry needs to do a better job convincing people you can make an above-average living," says Davis.