Economy Watch: Construction Edges Down Because of Energy

By Dees Stribling, Contributing Editor

U.S. construction spending experienced a modest downtick in February, off 0.1 percent overall, but is still 2.7 percent higher than the same month last year, according to the Census Bureau on Wednesday. The numbers are seasonally adjusted, so it wasn’t the weather that put a small dint in spending. Instead, it was the drop in energy prices since the middle of last year. Spending in the bureau’s “power” category—which includes oil and gas facilities—is down by 17.2 percent year-over-year (and 4.5 percent for the month). That sector of the construction industry is simply going to have to wait until energy prices rise again, as they always do.

The rest of the industry is doing fairly well, especially in spending on various kinds of non-residential projects. Office construction, for example, is up 19 percent since this time last year, while spending on lodging properties increased 10.4 percent. Manufacturing facility construction spending was up a whopping 37.9 percent year-over-year in February, the most of any category that the bureau tracks. At least for now, the resurgence of American manufacturing is having an impact on development, though the strong dollar might affect that over the longer run.

Even though business is now better for most commercial construction specialists, the industry is nevertheless facing a number of challenges, the main one being a lack of labor. The Associated General Contractors of America released a survey in January that found that 80 percent of U.S. contractors plan to start hiring this year, a major increase from 2014, when only 57 percent did. So the demand for construction labor is clearly back. What about the supply?

Unfortunately for the industry, the number of skilled laborers in the construction industry dropped by 2.3 million during the worst of the recession, according to the Census Buerau. Despite the expansion since then, only about half a million of those workers have returned—a recipe for a shortage. Because of the recession, ex-construction workers found jobs in such industries as energy exploration or healthcare. Some simply retired. Now, according to the AGC survey, 87 percent of contractors who want to hire report having a hard time filling craft worker and professional positions. Specifically, 76 percent are having a hard time finding craft workers, while 62 percent are struggling to fill professional positions such as project managers, supervisors and estimators.