By Nick Zieminski - Analysis
NEW YORK (Reuters) - Job losses in the construction sector could top 1 million if a housing downturn tips the economy into recession and tighter access to credit dampens business investment.
Strength in nonresidential construction may continue to offset a downturn in housing for now, but recent turmoil in credit markets suggests job losses may accelerate in the sector in the next few months.
“With what’s happening with the mortgage market, the financial markets in general, I think we’ll continue to shed workers at least for six months, maybe as much as a year,” said Bernard Markstein, director of forecasting at the National Association of Home Builders.
“The ability of nonresidential to continue absorbing additional workers is going to be limited, and that’s going to put downward pressure on construction employment overall,” he said, adding that cuts may be deeper than in the 1990s.
Construction employment fell about 15 percent in both the 1990s and 1980s recessions, and it dropped about 18 percent in the recession of the mid-1970s, according to the Bureau of Labor Statistics (BLS).
In each case, the sector’s declines were far steeper than overall job losses, and recovery took longer. But in the 2001 recession, declines were relatively modest as consumer-led demand offset weak business spending.
About 7.7 million Americans are employed by construction companies, according to the BLS, down about 75,000 from a peak in September 2006. The sector’s unemployment rate of 5.9 percent compares with 4.6 percent for the overall labor force.
A 15 percent decline now would mean more than 1 million jobs lost.
“We may be in a period where there may be larger losses because growth was so steep,” said John Challenger, chief executive of Chicago-based outplacement consulting firm Challenger Gray & Christmas. “(Compared with) that 15 percent that we saw then, this may be a steeper, more volatile cycle.”
Employment in the sector has fallen in each of the past four months from a year ago. The next six months may show a surge in job cuts, as projects are completed and new ones do not appear.
Construction companies have announced about 20,000 job cuts this year, according to Challenger Gray, but that does not count small companies.
Job cuts in the sector have closely correlated with data on construction spending but with about a six-month lag, said BLS economist Chris Goodman.
Construction spending in June fell for the first time since January, while private residential construction posted its 16th straight monthly drop.
“Commercial construction has not taken the hit that home construction has, but there is concern that if the economy is going into a downturn, (it) will follow,” Challenger said.
Pockets of strength remain in metropolitan areas like Las Vegas, Chicago and especially New York, where construction firms fret about a shortage of qualified workers.
“The No. 1 challenge to building all the work that’s out there is people,” said Lou Coletti, chairman of the Building Trades Employers’ Association in New York.
Building health-care facilities, hotels and public projects demands workers, some of whom are switching over from residential projects, he said.
For much of 2005 and 2006, more people were employed in home construction, but nonresidential construction now accounts for most jobs in the sector, according to the BLS.
Andy Frankl, president of IBEX construction, based in New York’s Times Square, hires several people a week and has been placing ads nationwide to get workers to New York.
A weak national housing market and a credit crunch, however, could domino into other types of construction.
“If people have a negative outlook, it’s contagious and it happens really fast,” Frankl said, recalling the downturn in the late 1980s and early 1990s. “People start laying off, they pull out of contracts, banks are not making loans, companies stop their investments and it can happen very quickly.”
“I‘m an optimist, but back of my mind it’s a scary prospect,” Frankl said.