FocusConstruction firms need more from US stimulus - economists

28 August 2009 16:39  [Source: ICIS news]

By Ben DuBose

Construction firms want more from the US stimulus bill.HOUSTON (ICIS news)--Funds from the US stimulus bill are coming in too slowly to help most sectors of the beleaguered non-residential construction industry, economists with leading construction groups said on Friday.

Money from the $787bn (€551bn) stimulus was expected to begin trickling into the construction industry - a key end market for chemicals and plastics - by May, said Ken Simonson, chief economist with the Associated General Contractors of America (AGC).

But three months later, many US construction firms have yet to benefit from the $135bn in construction projects promised by the stimulus, according to a recent AGC survey.

As a result, the industry could be subject to a continued contraction without expedited stimulus help, the AGC said.

“Sadly, construction workers are feeling the full impact of declining state spending, a near halt in office and retail construction and stimulus spending that - with too many programmes - has yet to materialise,” said AGC CEO Stephen Sandherr.

Non-residential construction generates $160-230 worth of consumption of chemicals and derivatives for every $1,000 spent on the project, according to the American Chemistry Council (ACC).

Data released earlier this week by the AGC showed 47 states with declines in construction employment between July 2008 and July 2009.

“The [stimulus] has the ability to halt the virtual free fall in construction employment that has cost the jobs of over a million construction workers over the past 12 months alone,” Sandherr said.

“With construction unemployment at almost double the national rate, it is disappointing to see so many of these programmes getting off to such a slow start,” he added.

The unemployment rate for people who usually work construction jobs is now 18.4% and was likely to remain over 10% into 2011, according to Jim Haughey, chief economist with Reed Construction Data, a sister publication of ICIS news.

The five hardest-hit states in the most recent employment figures - Arizona, Nevada, Connecticut, Kentucky and Tennessee - employ a combined 141,600 fewer construction workers than a year ago.

Meanwhile, the five most positive states - including Louisiana and North Dakota, the only two to post gains - only accounted for an increase of 2,700 construction jobs.

From a segment standpoint, the lone bright spot within non-residential construction has been the transportation sector, where stimulus funds have been spent quickly for projects such as highways, rails and airports.

“The highway money was the easiest to distribute and award because there was already a funding mechanism in place: the federal-aid highway programme, under which the Federal Highway Administration allocates money to state departments of transportation, which then schedule ‘bid letting’ days,” Simonson said.

However, outside of transportation, there was little difference in activity between companies doing stimulus-funded work and those that were not, the AGC said.

“Other agencies either had no mechanism in place or had far more money to handle than they were used to,” Simonson said.

In particular, non-residential construction has been plagued by the severe contraction in manufacturing and the sluggish hospital and university markets, Simonson said.

Of the overall $135bn in stimulus money earmarked for construction, $49bn was appropriated for transportation services. Aside from that, up to $38bn was to be issued for buildings, $21bn for water and environment issues, and $30bn for issues concerning energy and technology, the AGC said.

Without a significant pace increase for those other areas, construction activity as a whole should continue to decline for the remainder of 2009, Haughey said.

“The pickup in residential construction will be more than offset by the progressively faster decline in non-residential construction,” Haughey said.

($1 = €0.70)

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