At a quarry in Bridgeport, Texas, where rock is crushed,
sorted and cleaned, it’s hard to tell that the nation’s construction boom may
be hitting a wall. Workers maneuver front-end loaders to fill a long line of
rail cars and trucks with up to 25 tons of washed stone each. The destination:
one of many construction projects that dot the Dallas-Fort Worth area 70 miles
away.
“We’re moving a lot of rock,” said Dean Gatzemeier, who
runs quarries in North Texas and Oklahoma for Martin Marietta Materials Inc.
Construction has been one of the few pockets of strength
in the U.S. economy -- until recently. Construction payrolls have declined since March
and spending in May rose less than 3 percent from a year earlier, the lowest
rate since 2011. Coming after super-charged growth of 10 percent last year, the
question now is whether the sputtering is just a blip or something more lasting
that portends a significant drag on the economy.
“It’s a deceleration process after two years of fairly
decent growth,” said Robert Murray, chief economist of Dodge Data & Analytics, which gathers data on
construction.
Torrid Pace
Last year’s boom was spurred by housing and office
construction. Residential spending alone contributed almost 0.3 percentage
point to the U.S. economy’s 2.4 percent growth rate. New industries, such as
e-commerce, also drove construction work, including two Amazon fulfillment centers in California that
will be 1 million square feet each.
Yet construction may be a victim of its own success. A
torrid pace of apartment building has saturated some markets. Foreign
investment, looking for returns, has poured into high-rise condos in Miami and
hotels in New York, creating some overcapacity. In one example, Pollack Shores
Real Estate Group, a privately held group, put on hold plans to build a 315-unit
apartment complex in the Atlanta area as several new buildings cropped up.
Regulators have flagged a heightened risk of lending to
commercial real estate, noting that hundreds of banks increased loans to the
sector by more than 50 percent during the last three years.
GDP Percentage
The slowdown can be seen in construction payrolls.
Adjusted for seasonal fluctuations, the number of people working in the field
dropped by 22,000 since hitting a post-recession peak in March of about 6.7
million. It was the first time the job count had dropped for two straight
months since 2012.
The trend was reinforced on Monday when Vulcan Materials
Corp., a big seller of crushed stone, gravel and sand -- the basic
building blocks for all construction projects -- reported second-quarter
revenue and profit below analysts’ estimates. The company blamed a deceleration
of shipments on wet weather and the delayed start of large projects. Martin
Marietta reports earnings on Tuesday.
Many in the industry remain buoyant, saying the current
slowdown is temporary. Warm winter weather pulled projects forward in the first
quarter, which saw construction spending jump 11 percent, said Ken Simonson,
chief economist with the Associated General Contractors of
America. That event and heavy flooding in areas such as Texas caused
the numbers to stumble in April and May, he said.
Construction spending still has room to grow. As a
percentage of the U.S. economy it was 6.4 percent in the first quarter, below
the 50-year average of 8.3 percent. And while housing starts have rebounded
slowly to 1.1 million last year from a 2009 low of 554,000, they remain well
under a rate of 1.4 million a year since the 1960s.
Strip Malls
Simonson’s group projects that construction spending will
rise between 8 percent and 10 percent this year as projects to build schools,
hospitals and strip malls make up for slower growth of apartment buildings and
hotels. Next year, the outlays are expected to increase 6 percent to 8 percent,
he said, well outpacing the projected growth of the U.S. economy.
Construction companies are also pinning their hopes on
public works spending, such as the replacement of New York City’s Kosciuzko
Bridge. In December, Congress enacted the first long-term highway bill in a
decade, replacing short-term funding patches.
Iowa will finally expand to four lanes a 30-mile stretch
of U.S. Highway 20 between Dubuque and Sioux City, said Paul Trombino, director
of the state’s Department of Transportation.
“Without knowing that funding will be there, it’s hard to
do the big projects,” Trombino said.
No Workers
Brian Lane, chief executive officer of Comfort Systems
USA Inc., hasn’t been able to hire enough qualified employees to accept all the
jobs from customers. The Houston-based company installs heating and
air-conditioning systems in office buildings, schools and other commercial
properties. Welders and pipefitters are particularly difficult to find, and
salaries for skilled workers are rising 3 percent to 6 percent per year, he
said.
“We’re turning down work,” said Lane, whose company’s
backlog of projects rose to $777 million at the end of March, the highest level
since 2008.
Martin Marietta and Vulcan also don’t see a slowdown.
Martin Marietta expects sales of aggregates, as the materials are known, to
rise by 13 percent this year while Vulcan forecasts shipments increasing 9
percent.
“We have a long way to go in this recovery,” Thomas Hill,
Vulcan’s chief executive officer, said in an interview. “We’re really
encouraged by all our markets.”
Source: Bloomberg
No comments:
Post a Comment