Construction was one of the nation’s largest industries in 2006. These days, though, homebuilders are suffering. What’s in store for the fields and professions associated with construction?

In 2007, about $1.12 trillion in new construction was put in place, according to the United States Department of Labor (DOL). This means that the construction field accounted for about 8.5 percent of all economic output in the U.S.

Yet sales of existing homes dropped dramatically last year to about 5 million from 6.48 million in 2006, and sales of new single-family homes plummeted from 1.05 million in 2006 to about 775,000 in 2007. (Source: Plunkett Research, Ltd.)

Clearly, homebuilders have taken a heavy hit. So what’s in store for the construction industry?

Residential
Residential construction and sales of existing homes were extremely strong between 2000 and 2005, yet by the end of 2006 the residential market had slumped. Last year saw a steady general deterioration in the U.S. housing market.

On the residential side, Census Bureau figures show that 1.04 million new single- and multi-family homes were started in 2007, down from 1.8 million in 2006. The National Association of Home Builders (NAHB) estimates that new single-family building permits issued in the U.S. were off by 40 percent for the 12 months ending February 2008. This followed several years of record highs in new home construction.

Late last month, the Commerce Department reported that construction of U.S. houses in April dropped to the lowest level in 17 years, with builders having broken ground on the fewest houses since 1991, even as building of condominiums and townhouses rebounded.

Homebuilders remain considerably downbeat as market conditions continue to erode.

“Despite the Federal Reserve’s concerted efforts to lower short-term interest rates, free up credit markets and shore up the national economy, the housing market has shown no evidence of improvement thus far. In fact, conditions have continued to deteriorate in recent times,” NAHB Chief Economist David Seiders said in a statement last month.

Seiders continued: “The latest [NAHB/Wells Fargo Housing Market Index] shows that even fewer builders now foresee market conditions improving over the next six months compared with our April survey… .”

Commercial and Government
Construction in such sectors as office buildings, hotels, hospitals, shopping centers and state and local government construction projects have been relatively strong over the past few years. By the end of 2007, though, demand was off.

Non-residential construction for non-government (private sector) building put in place in the U.S. reached $296 billion in 2006, according to figures compiled by the U.S. Census Bureau. This grew to $349 billion in 2007, according to the same source. Growth was particularly strong in the hotel sector, in telecommunications facilities and in electric utility generating plants, notes Plunkett Research.

Meanwhile, commercial construction in the public sector (for government) was $255 billion in 2006, growing to $287 billion in 2007. As the health-care sector continues to attract huge investment, new or remodeled properties are expected to keep pushing demand for construction projects.

Although non-residential construction activity continues at a high level, it has not expanded since last fall, after adjusting for project cost inflation. The exception is construction of manufacturing facilities. “Manufacturing construction spending was 21.5 percent higher in April than last September,” Reed Construction Data reports. “Most of the increase in manufacturing construction is for process industries facilities.”

The stall in institutional building is “the result of very cautious spending budgets adopted by most states for the current fiscal year after three years of booming public spending growth,” according to Reed Construction Data. Extremely low consumer and business confidence caused by the current economic environment has become a major restraint on non-residential construction, and likely will remain so for the rest of 2008.

Construction Equipment
Despite the dim domestic picture for construction, the market for exports of U.S.-made construction machinery closed out 2007 with a gain of more than 26 percent compared to the previous year, for a total of $17.2 billion dollars worth of equipment sold worldwide, according to the Association of Equipment Manufacturers (AEM).

Today, U.S. construction-equipment manufacturers “continue to be in a ‘maintenance’ market as they have been for about a year,” reports Reed Construction Data, which explains:

Shipments are varying month by month in a very narrow range. They are averaging high enough to avoid discount pricing but not high enough to permit the manufacturer and distributor margins realized in the 2005-06 equipment boom. Progressively rising exports to a strong world economy [...] are offsetting softening domestic sales to the slumping U.S. construction market.

While Canada recorded the smallest gains for year-end 2007, AEM notes, Africa, Europe and Asia showed the most growth in their export purchases. The construction machinery market in China alone has expanded 21.3 percent per year during the past five years, according to a Freedonia report, which predicts demand — mostly driven by cranes and excavators — in China to increase 12.7 percent yearly through 2011.

Working in Construction
In 2006, construction provided 7.7 million wage and salary jobs and 1.9 million self-employed workers, according to the DOL. For last year, the U.S. Census Bureau estimates that 7.6 million Americans worked in construction.

Says the DOL:

About 64 percent of wage and salary jobs in construction are in the specialty trades, primarily plumbing, heating and air conditioning; electrical; and masonry. Around 24 percent of jobs are mostly in residential and nonresidential construction. The rest are in heavy and civil engineering construction.

The number of wage and salary jobs in the industry is expected to grow 10 percent through the year 2016, though this depends primarily on the level of construction, according to the DOL, which further notes:

Employment in heavy and civil engineering construction is projected to increase due to growth in new highway, bridge and street construction, as well as in maintenance and repairs to prevent further deterioration of the nation’s existing highways and bridges. Another area of expected growth is in power line and related construction. New power plant construction and connecting these new facilities to the current power grids will increase demand for workers.

Despite all this, employment in construction has risen so much in recent years that the numbers have been unsustainable (likewise jobs in real estate). Early 2008 saw tens of thousands of jobs eliminated from both construction and real estate.

Much of the future of the construction industry depends primarily on the level of investment put toward building, rebuilding and maintaining national infrastructure. Countries around the world are committing to infrastructure projects that increase their capability to compete in the global marketplace.

“The U.S. also needs to step up infrastructure investment or risk being left behind, especially by emerging markets,” AEM Senior Vice President Al Cervero recently said.

Indeed, as the nation’s infrastructure continues to go unattended, domestic opportunities await.

Earlier:

The State of Architecture in America

This Country Is Falling Apart. Literally

Resources

Real Estate & Construction Trends
Plunkett Research Ltd.

U.S. Builders Broke Ground on Fewest Houses Since ’91
by Courtney Schlisserman
Bloomberg News, May 16, 2008

Builder Confidence Edges Downward In May
National Association of Home Builders, May 15, 2008

Spending Growth Ends in Nonresidential Building and Heavy Project Markets
by Jim Haughey
Reed Construction Data, June 4, 2008

Construction Machinery Exports Top $17.2 Billion for 2007
Association of Equipment Manufacturers, Feb. 25, 2008

Construction Machinery in China
Freedonia, January 2008

Construction Equipment Shipments Still Steady
by Jim Haughey
Reed Construction Data, June 4, 2008