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Bloomberg
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.
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.
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.