Minnesota’s construction industry hit hard, with little relief in sight

Minnesota’s hard-hit construction industry, which has seen nearly a third of its jobs disappear over the past three years, sees no sign of relief anytime soon.

It’s almost as if there are two very different Minnesotas.

The state’s diverse economy has buffered it from the worst of the recession. Unemployment in Minnesota has consistently trailed a couple of percentage points below the national average, and 11,000 more people are working in the state now than a year ago.

But if you are one of the remaining 90,000 construction workers in Minnesota, you’re not feeling that same resiliency in the economy. 

 ‘Our construction market here is still very much in a recession, and most people are thinking it’s going to be another couple of years before [we see] any type of recovery,”  said David C. Semerad, CEO for Associated General Contractors (AGC) of Minnesota, an industry association for non-residential construction firms.

A recent state-by-state comparison of job gains and losses in the industry over the past 12 months points to some hopefuls signs nationally but offers little comfort for Minnesota construction workers. The state ranked 35th, posting nearly a 9 percent decline in seasonally adjusted construction employment from June 2009 to June 2010. Contrast that with a nearly 2 percent growth in overall employment statewide over the same period.


Change in Construction Employment and Total Employment June 2009 – June 2010

Source: U.S. Bureau of Labor Statistics

The Minnesota Department of Employment and Economic Development (DEED) reported recently that major metropolitan counties in the state have seen a 23 percent decline in construction-related employment over the past two years and 30 percent statewide over the last three years.

Ken Simonson, chief economist for the national arm of the AGC, which issued the study based on U.S. Bureau of Labor Statistics data, said that construction employment “edged closer to stabilizing in June, as half the states either added construction jobs or kept the same number as in May.” Compared with June 2009, construction employment rose in six states, the largest number of states to post year-over-year increases since October 2008, according to Simonson.

“It is encouraging to see some states adding construction jobs and the declines in others getting less severe,” Simonson said. “But there’s little room to celebrate with overall construction employment at a 14-year low and demand … still weak.”

Kansas posted the largest year-over-year increase, where construction jobs rose 7.7 percent (4,400 jobs), followed by Alaska (3.1 percent, 500 jobs), Arkansas (2.4 percent, 1,200 jobs), West Virginia (2.4 percent, 800 jobs) and New Hampshire (2.3 percent, 500 jobs).

Although California lost the largest number of jobs (-74,400, or 12 percent), Nevada, with a 24.4 percent drop (-19,500 jobs), posted the largest percentage job decrease, followed by Vermont (-18.5 percent, 2,500 jobs); Wyoming (-16.6 percent, 4,000 jobs); and Washington (-14.3 percent, 22,900 jobs).

AGC noted that projects funded by federal stimulus money have added construction jobs in many states but said that funding is running out. “Any improvements in the construction employment picture will be difficult to sustain unless Congress quickly passes long-term funding for transportation, drinking water and wastewater infrastructure,” said Stephen E. Sandherr, the association’s chief executive officer.

Minnesota’s Semerad, whose organization numbers several hundred construction companies, has maintained “fairly steady” membership through the recession by taking an advocacy role and offering education programs for members, he said.

He echoed concerns that highway construction will tail off, particularly if Congress fails to act on transportation funding. Semerad said that in the past, his organization played a leadership role in helping override Gov. Tim Pawlenty’s third veto of the state transportation bonding bill. “We said, ‘That’s enough!’ ” In addition, the group pushed for tax increment financing and historic rehabilitation tax credits as well. “We’re always looking at (ways to) help grow our markets,” he said.

He blamed the credit squeeze brought on by tighter lending standards, as partly responsible for the current dismal construction outlook.  He also said that competition is “particularly intense … you’ve got a lot of contractors chasing smaller pieces of the pie … They need work so they’re cutting prices.”

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Comments (3)

  1. Submitted by Richard Schulze on 07/21/2010 - 12:02 pm.

    There is a massive structural imbalance in residential real estate that will take at least a decade more to unwind. We could be looking at a replay of the same 26-year period from 1929 to 1955 when prices remained flat, and we are only 3 years into it. A second down leg in the real estate market seems a no brainer to me, as is the secondary banking crisis that follows.

  2. Submitted by Richard Schulze on 07/21/2010 - 01:25 pm.

    This whole problem exists because both home buyers and the government decided that a house was an investment vehicle rather than a place to live. Well-intentioned programs over the better part of a century have enshrined that notion as an unassailable right.

    In recent decades, the pace has picked up in terms of inventing ever more clever ways for every more people to pay too much money for a house. By making the government the de-facto lender or co-signer, the real estate industry externalized risk and internalized rewards. There are two ways to make houses affordable — low interest rates and low purchase prices. Either one works equally well for the buyer, who cares only about his or her monthly payment. However, the profits of builders, real estate agents, and title companies are all based on the selling price, so it’s been in their interest to keep price high, but interest rates down. We’ve also provided various tax breaks for home ownership that also enable the purchase price to be higher.
    I doubt that we’ll ever be able to do away with all the home buying subsidies that are so popular with both individuals and industry lobbyists, but prices eventually got to the point where even at near-zero interest rates, the houses were unaffordable. Even now, when I read about how the average home price in a nearby city has “plummeted” to only $400,000, it’s clear that we still have a long way to go down.

    Lenders are trying desperately to delay foreclosing, or at least to delay selling foreclosed houses, for as long as possible in order to not have to convert paper losses to realized losses on their books. Sellers are not able to come down in price because they already owe more than their house is worth. In my small town, all the houses that were for sale a year ago are still for sale. The necessary market corrections are not happening because sellers (banks or individuals) are not willing to admit that houses aren’t worth what they wish they were worth. Some are hoping to wait out the downturn. Some are hoping for a more generous government program. Meanwhile, nothing is selling, and the reason nothing is selling is that houses are still being priced as if they were investments rather than places to live. For the housing market to be rational, an average person working at an average job has to be able to afford to make the payments on a straightforward (no option ARMs) mortgage. When an average house costs $400,000 in the big city or $200,000 in a rural town, that’s just not possible.

    That “second dip in the housing market” is nothing to be afraid of. It’s the honest necessary realignment of supply and demand and the necessary honest recounting of bank balance sheets. Imagine what a mess we’d be in if the government had tried to prop up the dot-com bubble instead of letting it pop. Rather than trying all kinds of hocus-pocus to prevent house prices from dropping to the point where people can honestly afford to buy houses, we need to man up, deal with it, and move on

  3. Submitted by Kris Palmer on 08/17/2010 - 09:00 am.

    The illusory extra value in houses was held mostly by banks. When prices climbed too high and toppled, the public got socked twice, once by negative equity and again by new debt imposed by the government to pay off the bankers. Natural market corrections can’t happen (fully) if one player in the system gets propped up artificially.

    Construction should benefit, eventually, by further declines in home prices; presently, no one wants to renovate their own home or buy a new one because it feels like money down a hole.

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