BOSTON (CBS) – The construction sector’s summer of hope is turning with the weather, as what once appeared to be a budding recovery in rates and demand may now be shaping up to be nothing more than a temporary fix.
To be sure, stubbornly high unemployment and extreme volatility in commodities prices have wreaked havoc on the contracting sector, contributing to a steady stream of layoffs and declines in revenue for the better part of three years.
While those factors seemed to be on the decline earlier this year, the global economy’s fits and starts of late have once again thrown the construction sector’s near-term future in doubt.
Lisa van der Pool of the Boston Business Journal reports:
According to the U.S. Census Bureau, construction spending unexpectedly fell by 1.3 percent in July to an annualized rate of $789.5 billion. The month-to-month decline was the most significant on record this year.
Another point of concern: Building permits for new housing units in July totaled 597,000 nationally, a 3.2 percent decline from the 617,000 filed in June. A similar pattern was reported relative to housing starts, which are up from 2010 levels but showed signs of cooling as the summer wore on; home starts dropped to 604,000 in July, down from 613,000 in June, according to the Census.
Mary Gately, director of market services for the Associated General Contractors of Massachusetts, said construction companies are still recovering from the Great Recession. And though hiring improved during the second quarter, she said the prices for building materials and other commodities, such as fuel, are also kicking up and down, up and down.
Those factors, among other things, have made it harder to predict and offer set prices, said Gately.
“We live in a global economy,” she said of the worldwide demand for building materials.
Though some firms are starting to increase their management fees for projects, prices remain “quite low” compared to pre-recession levels, Gately said.
The pricing declines are largely rooted in the basics of supply and demand.
Greater Boston saw 6,672 building permits issued in 2010, a 62 percent decline versus the 17,442 permits filed in 2005. In Worcester, the drop was 61 percent.
The city’s filings totaled 1,391 for 2010, compared to 3,598 in 2005, according to Census data.
Nonetheless, optimists insist that a rebound may still be in the works, despite the recent backsliding.
Frank Callahan, president of the 75,000-member Massachusetts Building Trades Council, said the combination of new public and private building projects in the state is helping the construction industry, which was hit particularly hard by the recession and housing-market collapse.
Unemployment among trade workers ranged from a staggering 28 percent to 50 percent only a year ago, Callahan said.
But an increase in various construction projects over the past six months including many at private colleges has helped drive down those jobless-rate numbers to the 20 percent to 30 percent range, he said. But, even those gains seem tentative.
The Bay State had 108,700 construction jobs on record at the end of July, a 1.4 percent slide from the prior month’s total, according to AGC. The trade group has yet to offer statewide figures for August, but said the sector shed a net 5,000 jobs nationally.
“We’re cautiously optimistic, but we don’t want to raise false hopes that we’re out of the woods yet,” said Callahan.