Monday, November 24, 2008

Construction Employment and the Obama Stimulus Package

by Calculated Risk on 11/24/2008 11:09:00 PM

One of the key elements of the Obama stimulus package is infrastructure investment.

From the WSJ: Construction Industry Is Poised for a Rebound

The construction industry, beset by one of the biggest drops in employment in the current economic downturn, could be poised for a rebound under President-elect Barack Obama's expected stimulus package.
I don't think the plan is to have a rebound in construction employment, but to cushion the blow of the 2nd wave of construction job losses coming in 2009. Most of the construction job losses so far have been in residential construction, but the 2009 construction job losses will be related to the end of the commercial real estate boom.

Construction Employment as Percent of Workforce Click on graph for larger image in new window.

This graph shows construction employment as a percent of the civilian labor force. Even though construction employment has declined as a percent of the workforce, construction employment is still higher than the normal level. This is because the commercial real estate boom has kept many construction workers employed, mostly working on hotels, malls and office buildings.

However non-residential investment is now hitting the wall.

AIA Architecture Billing Index The second graph shows the Architecture Billings Index is at a record low.

There is "an approximate nine to twelve month lag time between architecture billings and construction spending", so we should expect the first decline in architecture billing to impact non-residential structure investment in Q4 2008, and a further downturn in non-residential construction activity next summer.

The Obama stimulus plan is intended to somewhat offset this coming slowdown in non-residential investment.

From the WSJ article:
From highways to schools, state and local governments have been postponing approved construction projects in recent months. Assured funding would jump-start these projects. The American Association of State Highway and Transportation Officials, a group of state and local government officials, has a list of 3,109 "ready-to-go" highway projects that could break ground in 30 days to 90 days worth $18.4 billion.

Two former Clinton administration transit officials, Mortimer Downey and Jane Garvey, are among those spearheading transportation issues for the Obama transition. They have reached out to state and local officials to be ready for a spending package.
Back in May I estimated the decrease in non-residential investment for malls, offices and lodging alone at about $60 billion in 2009. So I don't think $18.4 billion is anywhere near enough to offset the probable decline in 2009 non-residential investment.