Ups, Downs and Cliffs

Kristin Smith

I must admit that I tend to be somewhat of an optimist. So when construction spending reached a nearly three-year high in September 2012, I thought this was a sign of good times ahead. Even a month later when Hurricane Sandy ravaged the eastern seaboard, while I was incredibly saddened by the loss and devastation, I knew it meant many people would be going to work to clean up the storm debris and rebuild.

When the Associated General Contractors (AGC, www.agc.org) released its analysis of the construction spending data, its chief economist Ken Simonton said, “It is heartening to see growth in total spending, but the progress remains fragile and fragmentary.”

Construction spending rose 0.6 percent in September 2012 from the previous month and was up 7.8 percent over the same month in 2011, bringing spending to its highest level since October 2009. New multifamily construction was up 49 percent compared with September 2011. Spending was up 20 percent over the previous year in power construction, which includes oil, gas and other energy projects.

But as Simonton indicated, not all construction segments are seeing growth. As you might have suspected, the public sector has not fared as well. In fact, as of September 2012, the segment was in its third straight month of decline. I remember a year or two ago thinking that government and infrastructure projects were going to be the lifeline of the construction industry as the private sector dug its way out of the recession. That doesn’t appear to be the case anymore. Washington has its own set of problems and they all culminated at the end of 2012 and beginning of 2013. The so-called fiscal cliff was looming and business owners were putting major decisions on hold until they knew what was going to happen. The unemployment rate of the construction industry reaching 12.2 percent in November 2012 was being blamed largely on the potential for the fiscal cliff.

The AGC surveyed 551 construction firms between Nov. 28 and Dec. 6, 2012, gauging the effect the threat of the fiscal cliff was having on construction employment (www.agc.org/galleries/news/Tax_Increases_Survey-National.pdf). Fifty-four percent of firms reported the threat of tax hikes had forced them to adjust their business plans. Among those firms, 67 percent reported postponing hiring, 65 percent reported delaying or cancelling capital expenditures and 32 percent reported having already made layoffs. Hopefully now that much of those concerns about tax hikes can be put to rest, businesses will start investing in people and capital improvements once again.

The way I see it, growth is occurring in some construction sectors, and where there is construction, there is often demolition, and where there is demolition, there is usually recycling. I wish you the best of luck finding those opportunities in the coming year.