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Minnesota’s construction outlook shows scattered bright spots in still-gloomy overall picture

Employment in the beleaguered construction sector may see an uptick in 2011 across the United States, but the outlook in Minnesota remains mixed, according to a survey of 1,725 commercial construction companies nationwide.

Associated General Contractors (AGC) released the survey as part of its Construction Industry Hiring and Business Outlook that showed more construction firms are planning to hire workers this year than are planning to make layoffs, turning around a downward trend from the last couple of years.

AGC is an industry trade group whose members focus on commercial construction, rather than single-family residential construction. Commercial construction, everything from sewer lines and power plants to roads, hospitals, and office buildings, makes up nearly 80 percent of total construction employment, according the U.S. Bureau of Labor Statistics.

Twenty-seven percent of construction firms surveyed nationwide plan to hire an average of 23 employees per firm this year, compared with 20 percent of firms that added an average of 17 workers in 2010. In addition, only 20 percent plan layoffs (averaging16 employees per firm),  compared with last year, when 55 percent of firms reported layoffs (averaging 30 employees), according to the survey.

Survey respondents in Minnesota are less upbeat.  Twenty-five percent of firms plan to hire, but only expect to add four employees on average. Last year, 20 percent of firms reported adding an average of 12 employees each. Only 20 percent of state respondents are planning layoffs (averaging eight workers) — the same level as last year, when 35 percent reported layoffs.

Source: Associated General Contractors

Total construction employment in Minnesota dropped by 4,700 jobs, or 5.4 percent, from December 2009 to December 2010 and now stands at 82,700. That is off nearly 30 percent since the start of the recession, with 35,000 fewer jobs, according to the Minnesota Department of Employment and Economic Development (DEED).

Nationwide, total construction employment declined by 93,000 jobs, or 1.6 percent, for that period to 5.6 million. That’s a drop of 1.9 million jobs, or nearly 26 percent, since the recession began.

Despite the improved hiring outlook, more contractors nationwide and in Minnesota expect the construction market to shrink than expect it to grow. Sixteen percent of contractors nationwide and 6 percent in Minnesota expect market growth this year. Forty-eight percent nationwide and 44 percent locally don’t expect growth until 2012, with the remainder looking for growth beyond that.

Contractors are most pessimistic about the private office market, where 56 percent expect activity to decline, followed by the retail, warehouse and lodging market, where 52 percent expect less activity.

Contractors are most optimistic about the hospital and higher-education market, where 32 percent expect growth, and the power market, where 29 percent expect growth. However, even for those markets, 36 percent of contractors expect the hospital and higher-education market to shrink and 32 percent expect the power market to contract.

“This won’t be an easy year for most firms, but it will be better than last year,” said Stephen E. Sandherr, the association’s chief executive officer in a news conference call with reporters. “If current trends continue, this industry will be in a much better position 12 months from now than it is today.”

 “That’s pretty consistent with our viewpoint,” said John Campobasso senior VP for business development at Minneapolis-based Kraus-Anderson.

“Health care is one of our strongest sectors,” he said, with education and health care the strongest “the last five years or so.”

Continued excess capacity in office and commercial space has resulted in no new construction activity, he added.

Campobasso said he was uncertain about Kraus-Anderson’s hiring outlook and the overall construction outlook for Minnesota.

 “The stimulus propped up many construction jobs during the past two years,” said Ken Simonson, the AGC’s chief economist, noting that firms reported that one in five employees were involved in such projects in the past 12 months. “The stimulus is already becoming a thing of the past in most contractors’ minds.”

Similar to the national survey results, Kraus-Anderson is not counting on federal stimulus funding to drive construction spending. The firm has several stimulus-related school construction projects for American Indians in South Dakota and Arizona and a portion of the  $65 million Duluth International Airport terminal project.

“All public sectors are going to tighten their belts the next couple of years,” Campobasso added.

The dour market outlook appears to be affecting demand for new construction equipment as well, according to AGC.

Only 28 percent of firms report plans to purchase construction equipment, down from the 34 percent that reported purchasing equipment last year.

Investment levels among the firms planning to buy equipment appear to be heading up, however. Companies report plans to spend nearly $900,000 on average for new equipment, up from $671,000 last year.

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