The Labor Market Participation Rate and Prospects for Construction in 2014

The U.S. economy added just 74,000 jobs in December.  Economists focus on how many adults are working compared to population, the labor market participation rate, and they see this:

Brad DeLong explains. Construction companies cut 16,000 jobs in December, partly due to cold weather. But not good.

Here is the AGC's economist, Ken Simonson, with prospects for 2014:

The year opened with an upbeat report on construction spending from the Census Bureau on January 2. The agency reported that spending in November was the highest since March 2009 at a seasonally adjusted annual rate (a statistical technique to remove distortions due to normal weather or monthly variations). For the first 11 months of 2013 combined, year-to-date spending rose 5.0 percent from the same months in 2012. 

But the pickup was very unevenly distributed. Private residential spending soared 18 percent year-to-date, powered by a 45 percent leap in multifamily construction, a 28 percent jump in single-family, and a 2 percent uptick in improvements (additions and major renovations to both types). Private nonresidential construction was unchanged, on balance. Public construction slipped 3 percent, dragged down by an 8 percent contraction in public educational spending, which more than offset a tiny rise in highway and street construction. These two segments account for more than half of public construction. 

The overall flatness of private nonresidential construction masked extreme differences in some segments. The top performer through the first 11 months was lodging construction, which climbed 26 percent as hoteliers modernized older properties and began putting up new big-city hotels and extended-stay properties in areas receiving an influx of oil and gas-related workers. At the other end of the spectrum were communications construction, down 13 percent, and power, down 11 percent. However, the apparent plunge in power construction was driven by a surge in construction of wind facilities in late 2012 to beat a yearend deadline to qualify for the wind production tax credit. In 2013, the credit applied to projects begun by year end, so there was no comparable spike in spending. 

For 2014, the two biggest private nonresidential segments—power and manufacturing—should both post double-digit increases, along with lodging and warehouse construction. Office and retail construction should continue to make modest gains, although they will remain far below pre-recession levels. But private hospital and educational construction will remain in the doldrums. 

Overall, private nonresidential construction should increase 5-10 percent. Private residential construction will grow another 10 percent or more, thanks to continued double-digit growth in apartment construction, although single-family homebuilding  will probably stall later in the year. Public construction will slip again, though perhaps not as much as the 3 percent drop in 2013. Adding up the pieces, total construction spending will rise close to 10 percent, a significant improvement over last year’s 5 percent growth.

With the economy continuing to struggle and interest rates at historic lows, public sector construction should not be slipping further.  It seems that public entities should not be speaking of P3 at this time: they should be taking advantage of historically low bond rates and catching up on deferred infrastructure maintenance and building needed new infrastructure.