Midwest Builders Face Worsening Economy
Rather than wait and see whether modest gains in construction activity this summer heralded a return to economic stability, many builders in the Midwest and elsewhere are heading for the exits.
Although national construction employment inched to a 15-month high in July and remained virtually unchanged in August, “unemployed workers are leaving the industry at seven times the rate they are finding jobs in it,” says Ken Simonson, chief economist with the Arlington, Va.-based Associated General Contractors of America.
“We need a recovery to market to the prospective work force,” says Anirban Basu, chief economist with Arlington, Va.-based Associated Builders and Contractors.
The industry isn't getting one. Since late 2010, full-scale recovery of U.S. construction markets has been undercut by a succession of countervailing trends, including rising food and fuel prices, declining economic growth and, more recently, the downgrade of the U.S. credit rating, Europe's financial crisis and volatility in U.S. financial markets.
“Business and consumer confidence has been battered,” says Basu. “I'd say we have a 50 percent chance of another recession—maybe more.”
Even silver linings, including an ABC survey showing increasing backlogs during the second quarter, have been tinged by rain clouds. “The improvements are largely a function of previous momentum going into 2011,” says Basu. “Lenders and developers have since removed risk from the table due to elevated uncertainty about the economy. Momentum in construction can't survive a loss of economic momentum. We don't look for future backlogs to be as optimistic.”
Likewise, ENR Midwest's annual ranking of the largest specialty contractors reflects activity that occurred in 2010, prior to more recent concerns about the U.S. economy. The region's top 20 firms performed surprisingly well, logging only an 8% decline in revenue, compared with the 23% decline the region's top general contractors booked in the same period.
Although the Midwest continues to lag other regions in backlogs, Basu says there is reason for optimism. “The Midwest was hit harder,” he says. “Now it's holding nicely, despite some of the highest unemployment rates in the country.”
Midwest builders continue to benefit from a resurging auto industry and rising food production, albeit unevenly. “Missouri historically has been a producer of autos and auto parts, but many of those plants have shut down,” says Basu. “Wisconsin has a diverse economic base, including food production, but competition has whittled away someof those sectors.”
Those developments are reflected in regional employment trends. While construction employment rose modestly in Illinois, Indiana and Ohio during the first half of 2011, Wisconsin and Missouri both logged declines, with Wisconsin ranking 41st in construction employment among all 50 states.