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Nonresidential Construction Steady Despite Drop in New-Home Building

As construction slows for residential building and homebuilders reduce their work force, nonresidential construction employment and architecture firm billings remain steady, according to several reports.

According to Ken Simonson, chief economist for The Associated General Contractors of America, nonresidential construction employment enjoyed a small gain in January. Simonson pointed to growth in payroll employment statistics from the Bureau of Labor Statistics and December construction spending reports from the U.S. Census Bureau.

“Total construction employment fell by 27,000 in January, seasonally adjusted, but all of those losses occurred in residential building and specialty trades,” said Simonson in the national report released early this month. “Employment in the three nonresidential categories , nonresidential building, specialty trades, plus heavy and civil engineering , edged up 1,300.”

Simonson said that the reality is a good deal better for nonresidential construction employment than the Bureau of Labor Statistics indicates.

“(U.S.) Census figures for December show nonresidential construction spending jumped almost 16 percent from a year earlier, which could only have occurred with a sharp rise in employment,” he said. “The missing employees work for specialty trade contractors, firms that entered the database as residential but are now busy installing wallboard, wiring and plumbing in schools, hotels and offices rather than houses.”


Religious Structures

The AGC, which closely tracks material costs, material spending, and employment, said the Census numbers show growth in most nonresidential categories, everything except religious structures, which are closely linked to new housing.

“For 2008, I expect continued expansion in power, energy, communication, hospital and higher education construction and a modest increase in the nonresidential total before taking cost escalation into account,” Simonson said. “Unfortunately, materials costs are accelerating again, particularly diesel fuels and steel.”

While the nonresidential market is hanging on, the job losses in residential are substantial.

Donna Morafcik, vice president of communications for the Building Industry Association of San Diego, estimated 10,000 construction and construction-

related jobs were lost in the county in the past year. Morafcik said the loss has also resulted in a loss in BIA membership. The nonprofit trade association has lost 100 member companies in the past year. BIA now has 1,325 business members countywide.

She said job losses were due to the decrease in building permits and housing starts during the past two years.

“If you don’t have housing starts than you don’t have a need for people to construct them, develop them, market them,” said Morafcik. “The trickledown effect is very broad.”

The shift to nonresidential from residential construction is a clear sign of industry resilience and creativity, said Morafcik.

“The smart companies, the midsize companies, the private companies, the ones that have been here through the ups and downs, been through the cycles, they adapt. They tighten the belt and adjust their skill sets and expertise,” said Morafcik.


Still Hiring

Meanwhile, Sacramento-based recruiting firm Integrity Recruiting Inc. found construction-related industries are still hiring. In a January report, Integrity Recruiting reported a rise in compensation for professionals working on public works construction projects, tourism-related industries and multifamily housing.

“Construction companies and professional service firms are hiring and looking for talented individuals as they re-focus their businesses on government and commercial projects,” said Angel Ahumada, chief executive officer of Integrity Recruiting. “Government spending on construction is up in many areas, including California, and these companies are actively pursuing that work as residential construction has come to a halt.”

The report also projects continued declines in jobs for the residential construction industry.

“Commercial construction may slow down in the next year or two, but for now it is benefiting construction companies, architects and engineers,” said Ahumada.

The American Institute of Architects recorded another healthy score in its Architecture Billings Index in December. The national report found a lag time of approximately nine to 12 months between architecture billing and construction spending.

AIA Chief Economist Kermit Baker said as the country braces for a possible recession in 2008, there will likely be an easing in demand for design services. Baker said nonresidential construction is expected to be a source of strength in an otherwise uneven economy.

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