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Construction's Uneven Recovery
Published Tuesday, December 6, 2016

The construction industry these days is like a street sign at a busy intersection with arrows pointing every which way and drivers confused where to go.

Nonresidential construction in the U.S. was up in the first half of the year from a year ago but has been experiencing monthly declines in the past few months. Single-family building permits in NH are up, but multi-family permits are mostly down. Companies report too much work and not enough employees despite the industry shedding thousands of jobs.

So what does all this mean? Overall, the construction industry saw a 5.6 percent increase in spending in the first seven months of the year over the same time in 2015, according to Associated General Contractors of America (AGC). State specific figures were not available. And while residential home building permits are down 2 percent nationally and in NH between July 2015 and July 2016, according to the National Association of Home Builders, residential construction spending is actually up, according to AGC.

“On balance, there is still strong demand for construction, especially for multifamily and private nonresidential structures, while homebuilding continues an uneven recovery,” states Ken Simonson, AGC’s chief economist, in the September update. “But public investment in infrastructure and educational construction has been tepid.”  

On the ground, the situation is as hard to parse out as the numbers. In many NH towns, land continues to be cleared for new homes and businesses break ground for larger facilities, including a groundbreaking this past summer for the nearly 1-million-square-foot central distribution facility for F.W. Webb in Londonderry, and the completion this summer of River’s Edge Apartments, a 41,000-square-foot affordable housing complex overlooking the Winnipesaukee River in Laconia.

Despite these developments, the construction industry, among the hardest hit sectors in the Great Recession, is experiencing an uneven recovery. The good news is construction unemployment both nationally and in NH has decreased dramatically from its high in July 2009, when it reached 18.2 percent in the United States and 15.9 percent in NH. In July 2016, construction unemployment was 4.5 percent nationally and 2.7 percent in NH. Nationwide, after a stellar start to the year, the construction industry lost 25,000 net jobs since April after adding 68,000 through the first three months of 2016, according to Associated Builders and Contractors (ABC).

Nonresidential Activity
In July, nonresidential construction spending in the U.S. reached its second highest since November 2008. That was right behind June, according to an update from ABC released Sept. 1. But ABC also reported government spending on construction has declined 6.5 percent year-to-date and the U.S. construction industry lost 6,000 net jobs in August.

ABC Chief Economist Anirban Basu cites several factors suppressing nonresidential construction, including the lack of public investment in infrastructure, increased regulations and major retailers closing stores rather than expanding.

So what’s working in the construction industry’s favor? An improving housing sector, low interest rates, improving employment and increased lending, Basu states. “This pattern of good news followed by bad news is nothing new and continues to paint a confusing picture for nonresidential construction activity in the U.S.,” he says.

Residential Construction
Despite overall drops in residential activity, building permits for single-family homes in NH increased 31 percent between July 2015 and July 2016, well above the 18 percent increase experienced in New England and 8 percent nationally, according to NAHB.

Permits for single-family homes are on the rise, but permits for multi-family dwellings are declining, down 15 percent nationally and 53 percent in NH between July 2015 and July 2016, according to NAHB. While residential construction permits overall are down 2 percent in NH for that period, they are up 15 percent in the Manchester-Nashua metro area.

The spike in NH’s permits for single-family homes is likely spurred by interest rates, says Paul Sullivan, president of the NH Home Builders Association and founder of The Sullivan Company, a residential contractor based in Newton, Mass. that also serves NH. “People are buying homes and also doing large renovation projects now,” he says. “We are optimistic about a continued strong market for new single-family home building and remodeling.”

Mark Holden, president of the NH and Vermont chapter of ABC, says he is “cautiously optimistic” about the state of the construction industry. “The fact that there has been sustained activity for a couple of years [is an] indicator it will go on for awhile,” he says.

Looking Ahead
Anecdotally, Holden says NH construction companies are reporting project backlogs that are better than they have been in years but not as deep as they would like. “They are feeling better about their situation than they have been,” Holden says

Palmer & Sicard, a mechanical contracting firm in Exeter, has increased revenue and its backlog of projects this year, says Mark Hodsdon, firm president and board chair of ABC’s NH/Vermont chapter, though he did not cite specific figures. “With the discussions I’ve had across the industry through the summer, there’s been too much work and not enough people to do it,” he says. “We had a very strong first three quarters of 2016. It looks like our 2016 will close out strong. Everyone I have spoken to has seen same thing.”

New Hampshire’s low unemployment rate coupled with the aging of the construction industry’s workforce means it is tough for construction companies to find help. It’s a similar story nationally. A survey released this summer from AGC found two-thirds of construction firms find it difficult to find craft workers. AGC CEO Stephen E. Sandherr cites a disconnect between the skills construction firms need and what is taught in schools.

Despite workforce issues, Hodsdon says that 2017 is “looking promising,” particularly in the education, health care, residential, and mixed-use building areas.

One thing holding the industry back is the lack of skilled labor. The commercial construction market in New England is busy, Holden says, and a shortage of skilled workers continues to be one of the biggest challenges.

Holden points out that ManpowerGroup, a global staffing firm, identified skilled trades as the hardest jobs to fill for the last three years. “Contractors are focused on doing what they can to retain the existing workforce,” he says. “Attracting new workers into the industry is one of the biggest challenges.” While the flood of boomers retiring is leaving plenty of job openings in their wake, millennials are less apt to consider jobs in the trades, Holden says.

“When we find a young person that is interested in the trades, we latch onto them pretty hard and provide learning opportunities to bring them along,” Hodsdon says.  

ABC is working to identify the barriers that exist in high schools to promote the trades as a career option, Holden says, explaining there should be paths to careers and not just to college for high school graduates. “We want to make them aware of the different careers out there and the pathways to develop those careers,” he says.

Sullivan says it’s “nearly impossible” to find workers for the trades. “We’re facing labor shortages across the country in the building and remodeling industry.”

Both ABC NH/VT and NH Home Builders Association sponsored the 2016 NH Construction Career Days, an event that promotes the construction industry to NH’s youth through hands-on activities. This year’s event was held at the end of September in New Boston, attracting a record high student registration of 1,650 from more than 50 schools.  “They learn about the trades and construction, meet professionals, and learn about tools and projects,” Sullivan says.

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