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Good news on construction jobs tempered by harsh realities

Overall, the trailing 12 months employment number is down 1% compared to the period ending March 2020. The article also notes that construction starts have declined over the four months ending in February.

While any good news is good, its important to understand the larger forces at work. While overall construction employment declined only slightly during 2020, even in the face of the pandemic, construction spending has declined more significantly. Further declines in employment and cash flow are likely.

At the outset of the pandemic, projects that were in construction tended to remain in construction, while many projects that had yet to be started, were put on hold, or were abandoned. The decline in jobs we have seen to date is primarily the failure of new projects to start as current construction projects wind down and close out.

Not only did shovel-ready projects fail to start, but in April 2020 design work dropped dramatically, and has remained sub-par until recently per the AIA Architectural Billings Index, a leading indicator of construction activity.

Construction projects have a lifespan of course. Cash flow and construction employment in each project follow a curve that peaks roughly at the midpoint of construction. Delaying the start of a project delays that peak, so the months of delay that many projects have endured are having the effect of pushing peak employment out an equal number of months. For a typical 12 month project, planned to start in April 2020, that actually started in January 2021, that will push an employment peak planned for October 2020 out to August 2021.

In a recent post on Ed Zarenski’s Construction Analytics website “Projects on hold vs. Lost new project starts”, he lays out the expected change in construction spending and jobs through 2022, in relation to two important factors – how long projects take to complete, and how many projects halted or failed to start on time during the bad days of the pandemic’s first months.

As we get further into 2021 and into 2022, the impact of those delayed and abandoned projects from the first quarters of 2020 will provide continuing downward pressure on jobs and spending as those midpoints are pushed farther into the future.

The proposed stimulus package in the works is a very broad based jobs creation act, that will impact many sectors, offsetting that downward pressure. This is a good thing. Focusing the stimulus on one sector, such as roads or other heavy construction, would overload that sector’s ability to absorb the workload, and result in cost inflation, and a delayed spend, as the sector struggles to add capacity.

Spreading the spending over multiple sectors, including buildings, heavy construction, utility upgrades, bridges, and the many other project driven sectors that are included in the bill, will allow many more jobs to be created, and will still provide a longer term stimulus as funding allows projects to be greenlighted, and the spending and job curves begin for each individual job.

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