By Dan Shaw
91��Ƶ staff

For anyone who follows construction statistics, Ken Simonson’s name is a familiar one.

For nearly 20 years, the chief economist at the Associated General Contractors of America has been keeping tabs on rises and falls in key indicators such as construction employment by metropolitan statistical area, state and the U.S. as a whole. His weekly data digest, read widely throughout the industry, is seen by many as a primary means of learning about some of the biggest trends in the industry.

Lately, he’s been devoting plenty of space to rising materials prices and supply shortages. His digest for the week ending May 11 noted such eye-popping facts as lumber future and steel-price indexes reaching new peaks, at triple or quadruple their lows of last year, and copper futures reaching an all-time high of $4.75 a pound on May 21.

Speaking on Wednesday during a Builder Breakfast webinar for the 91��Ƶ’s sister publication in Milwaukee, The Daily Reporter, on “The future of the construction supply chain,” Simonson readily acknowledged that the main culprit in all of this has been COVID-19. The pandemic has led not only to an unprecedented demand for new single-family houses but also renovation projects to make space for home offices and virtual learning.

But COVID-19 was only one of a handful of big disrupters of supply chains in recent years. Also of great consequence have been new tariffs on Canadian lumber, the recent blockage of the Suez Canal by an errant barge and the shutoff of the Colonial Pipeline in the eastern U.S. by a criminal group.

Many construction companies have found themselves locked into contracts that were negotiated when prices were lower and have thus been unable to pass these higher costs on to clients. And even as the pandemic has caused demand for residential projects to spike, it has led to a slowdown in the construction of hotels, dorms and hospital space used for purposes other than treating coronavirus patients. The resulting competition for the few projects left has put contractors under even more pressure to keep bid prices low.

“Going further out eventually the pandemic will be in the rearview mirror,” Simonson said. “But we can see some trends that are likely to stick around. We know that population growth has slowed down sharply.

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And that has implications for housing, and for associated infrastructure, roads, and water and sewer and so forth, for local retail and for public buildings, such as schools and libraries.”

At the end of Wednesday’s event, Simonson took some time to answer questions from viewers. Here’s a short transcript of some of what they asked and his replies (edited for clarity and brevity).

Question: Are single-family home starts still a good economic indicator?

Simonson: I see several ways of answering that. First, looking back over history, unquestionably the demand for single-family homes made the 2000 recession shorter and milder than it would have been and a lot of other things started recovering a year or two or three years after single-family housing. This gave a lot of people the impression that housing was somehow a locomotive for the rest of the economy and I used to hear, and I still hear sometimes, that nonresidential construction, commercial construction, follows housing by six to 12 or 18 months. I think what people mistook for causality was actually just different factors leading to that kind of growth.

But clearly housing starts are a very good indicator for actual residential construction and demand for related things, whether it’s lumber or appliances and so forth.

Question: Any idea, or have you got a gut feeling, on when we can see a softening of the costs?

Simonson: Well, there’s always disagreement about what makes markets move and where prices are going to go next. But right now there’s unusually strong agreement that they’re not going to get back to pre-pandemic lows. A year ago, in September of last year, lumber prices suddenly plunged after hitting record levels and went down, maybe 30 percent or 40 percent. Then things turned around in a vicious way and we’ve been seeing new records pretty much every week, until recently. Just in the last few weeks lumber futures on the commodities exchange of what used to be called the Chicago Mercantile Exchange had another big plunge. But I’m not ready to say: OK the worst is over for lumber and with steel.

So that’s a long answer to say: No, my crystal ball is too cloudy to say if we’re going to see prices start to come down anytime soon. I am pretty confident that they’re not going to get back to where they were two years ago. But that’s not necessarily a bad thing and indicates the economy will heal pretty well.

Question: Some say the price of concrete is going to increase like that of lumber. Can you explain the possible reason for that and what we might see?

Simonson: I’ve seen these “dear valued customer” letters in the last couple of weeks announcing that cement makers in different parts of the country are going to be raising prices anywhere from June 1 to September 1 anywhere from 5 percent to 10 percent.

This is very unusual. And to have it happen at this point in the building season, even near the end of what in northern states is the peak season, I think that’s also very unusual. But I would never say that it’s going to go up the way lumber did that. The demand for ready-mix and pre-cast and pre-stress concrete is much more stable than it is for housing. So I don’t foresee that kind of issue now. I would also say that 15 years ago I was involved in getting rid of a really self-damaging anti-dumping duty on Mexican cement that caused really unnecessary shortages and allocations in many parts of the country.

Since then, very large cement capacity has been built in some parts of the country. But you can still get localized shortages. We had a report that a major cement plant in the Dallas-Fort Worth area was damaged by that freeze in Texas that knocked out power. So you might even feel some impacts from that. Or if the Mississippi River dries up in the spring or floods, you may not get barges moving cement the way you need it.

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Construction spending last year in the U.S. hit an eight-year high, with growth expected to continue through 2016.

were released Monday by the Commerce Department and they show a slight gain over November but overall another huge year for construction. Around $1.1 trillion worth of work was performed – or about 10.5 percent more than 2014. It’s the most since 2007 and the housing crash.

“I think the U.S. economy is fundamentally strong,” said Ken Simonson, staff economist for Associated General Contractors. “People think that because we’ve seen growth for about six years, it should be time for a slowdown. Well, I don’t see anything natural about an expansion.”

Residential construction had risen for six years prior to the crash, before falling for five straight years. It now has risen for three, including 8.1 percent growth last year. Most of that came from multifamily rental properties, as opposed to condos, which haven’t boomed since the Great Recession.

Private construction jumped 9.9 percent in 2015, and public rose 3.9 percent.

Closer to home, the number of construction workers in Oregon rose from 80,700 in 2014 to 82,200 last year (the Commerce Department doesn’t track state-level construction spending, but economists often use employment as a proxy to gauge the industry’s health, Simonson said). Despite this growth in employment, the number of construction workers in Oregon is far from the 2006 peak of 102,000.

One factor driving growth is demand for multifamily units. Occupancy in the Portland-Vancouver, Wash.-Hillsboro metropolitan area has risen each month since December 2014. And over the past five months, rents in Portland have risen faster than those in any other metro area tracked by data firm .

Only a shortage of skilled tradespeople is slowing growth in construction, Simonson said. Firms are prevented from taking on additional projects because they simply don’t have enough workers.

The year ahead will be more “consumer-led,” Simonson said, with somewhat more government spending – though a possibly tough climate for the manufacturing and agricultural industries and exporters. Add small but real increases in take-home pay, and the economic outlook is positive overall, and for construction as well, he said.

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An aging workforce and a shallow labor pool means the construction industry in Oregon is facing a shortage of workers – and it will likely worsen before it improves.

Data released Wednesday by the Associated General Contractors of America indicates 83 percent of reporting Oregon construction firms are struggling to find qualified craft workers and 54 percent are having a hard time filling professional spots.

At its peak, in 2006, the U.S. employed 7.7 million workers in the construction industry. By 2011 the industry had lost 2.3 million jobs, or 30 percent of its workforce, AGC Chief Economist Ken Simonson said.

“When the industry was at its worst we had a 43 percent unemployment rate,” said Mike Salsgiver, executive director of AGC’s Oregon-Columbia chapter. “We’ve found it didn’t take much of an upturn for the industry to be faced with a shortage of workers.”

The industry has rehired about 600,000 workers since the economy began improving, Simonson said, and already firms are struggling to find qualified workers. He attributes this to people retiring, finding other careers and dropping out of the workforce entirely.

“Now that we do have work we’re adding workers at double the rate of other industries,” he said. “But we’re quickly getting to the point where the pool of former workers is depleted.”

Simonson said the construction industry is increasing its workforce by about 3.9 percent each year, whereas the nationwide pace is around 1.9 percent for the last 12 months.

“Fifty-six percent of Oregon contractors have increased wages to retain and recruit craft workers,” he said. “Forty-nine (percent) have boosted base pay rates to attract construction professionals.”

Steve Malany, president of Portland-based P&C Construction, said he pays his employees anywhere from $25 to $40 an hour and offers full benefits.

“It’s not just a job; it’s a career,” he said. “You can support a family on these wages for the rest of your career.”

But if there’s no one to hire, it doesn’t matter how much firms like P&C Construction are offering.

Salsgiver said the average age of a construction worker is 43. The average age of a skilled construction worker – someone who can work unsupervised and has often gone through a formal apprenticeship program – is 46.

ACE Academy, a public charter high school for juniors and seniors, is hoping to educate the next batch of construction professionals, executive director Mark Clifford said.

Students enrolled at ACE take classes at the Northeast Portland campus for half a day, and then return to their regular school for the other half. ACE offers kids specialty classes in architecture, construction and engineering in addition to typical high school classes like English, math and science.

“Some of the schools have similar programs – Reynolds has a construction class, for example – so students can have that and come here to get an education they can’t get at their high school,” Clifford said. “This program is designed not to be just like a regular high school program, but to augment it.”

Right now, four Portland-area school districts – Gresham-Barlow, Parkrose, Reynolds and Centennial – have partnerships with ACE, though Clifford said the school would like to include other area schools and recruit more students.

Malany, who’s serving as president of AGC’s Oregon-Columbia chapter in 2014, said he and the other chapter members at their monthly meeting have discussed how to reintroduce career technology education into local high schools.

“High school officials in this program say graduation rates for the students who participate are up 15 to 20 percent,” Malany said. “It holds their attention because they’re participating in hands-on, real-life situations that help them understand what having an education can do for them in the long run.”

Salsgiver said there has been a clear directive in public schools over the past 40 years to reduce funding to shop classes and similar ones, and encourage students to follow a four-year college path instead. But he argues that not all students excel in a high-tech environment.

“There is a clear correlation between a certain type of student, one who likes to work with their hands and isn’t a traditional student,” he said. “Those types of students, traditional classrooms don’t work for them.”

Malany said that AGC and ACE also are making a concerted effort to educate high school counselors that options like ACE exist.

“We’re trying to make people aware that construction is a great industry,” he said. “They came through a four-year university, so that’s the way they’re geared. Through training efforts we’re trying to open their eyes.”

Of the Oregon construction firms polled by AGC, 51 percent said the local pipeline for preparing new craft workers is poor, and 25 percent of poll respondents expressed a low opinion of the local pipeline for construction professionals.

“There hasn’t been a place for students to go, and we’re trying to reconnect them,” Salsgiver said. “It’s going to take us a long time to rebuild this pipeline.”

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Construction in Oregon continued to outpace other major industries in employment and ranked tied for fifth nationally in terms of year-over-year growth, according to a pair of recently issued reports.

The industry in Oregon added 8,100 jobs, an 11.8 percent increase, since Nov. 2012, according to seasonally adjusted data released by the Oregon Employment Department.

“By far, construction is growing more rapidly than other industries during that period,” said David Cooke, an economist for the Employment Department. “A lot of that is the demand for new construction of single family homes and multifamily housing in the state.”

Statewide construction employment growth has been concentrated in four key areas: the Portland metropolitan area (including Clark County), Bend, Medford and the Columbia Gorge. Growth in Eugene and Salem has been relatively flat, according to the reporter

Cooke said he expects the upward trend in construction activity should continue into spring and early summer. That should bode well for workers with construction skills who have been out of the industry due to low demand for residential construction in recent years, according to the report.

Compared with other states, Oregon ranks in the top five nationally in year-over-year employment growth, said Kenneth D. Simonson, chief economist for the Associated General Contractors of America, based in Arlington, Va.

Oregon’s employment has been rising on a year-over-year basis since March with the rate increasing for the past five months, Simonson said.

“I consider this a strong and robust result, not a fluke,” Simonson said.

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Every dark cloud has a dark lining – or something like that.

Prices for materials have grown rapidly over the past year, further complicating financial woes for contractors that have had to lowball bids to keep working during the recession, said Ken Simonson, chief economist for Associated General Contractors.

“Construction materials costs are rising much faster than the consumer price,” Simonson told the Daily Journal of Commerce Tuesday.

The producer price index, which measures prices at a manufacturer’s site or point of sale, showed rises in diesel fuel costs of 4.8 percent from October to November, and increases of 18.5 percent over the past year.

More locally, a gallon of diesel on the West Coast last year averaged $2.85 a gallon. This year, it averages $3.36 a gallon, Simonson said.

Copper and brass also rose dramatically – with a 5.6 percent increase from October to November, and 16.4 percent over the past year.

“Copper futures hit an all-time high this week of $4.20 a pound,” Simonson said. “I would expect that to appear quite quickly in the price of copper.”

Aluminum mill shapes rose 3.5 percent from October to November and 14.3 percent over the past year.

And expect steel to follow suit, he said.

“Material steel makers have said they’re going to increase prices in most of steel on the first of January,” Simonson said. “So it looks like another material is going up.”

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Expect slow but steady growth in the Pacific Northwest construction sector over the next year, says Ken Simonson, chief economist for the Associated General Contractors.

Nationally, the group expects steady to modest growth in construction spending of 3 to 7 percent in 2011. Of that, Simonson expects residential spending to increase 5 to 10 percent and non residential to increase 0 to 5 percent.

Locally, however, things could pick up a bit faster, he said.

“I think the Pacific Northwest is going to benefit from an upturn in international trade, both outbound and import,” Simonson said. “The region is also technology heavy, which could be a growth area in 2011.”

Oregon and Washington have suffered heavily from the housing market crash, but because the region has significant growth potential, those markets could also pick up – or at least get back to the middle of the pack nationally – in the coming year, he said.

“Currently you’re plagued by a big overhang in residential and commercial properties,” Simonson said. “But I think your growth prospects are better than the country as a whole.”

Still, the growth won’t be as fast as most folks would prefer.

“I don’t expect a dramatic rebound,” Simonson said. “The U.S. recovery remains fragile.”

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Today’s release of shows the job picture isn’t improving nationwide. In fact, unemployment continues to climb.

Of the jobs lost last month, nearly a third were in the construction industry. That’s prompted the Associated General Contractors of America’s chief economist to drop the “D” word:

“While most Americans are experiencing a recession, construction workers are being forced to cope with depression-like conditions,” Ken Simonson said in a release.  “There’s nothing good in today’s report for the nation’s construction workers.”

The construction industry lost 65,000 jobs in August, bringing the total number of jobs lost to 1.4 million since the recession started, Simonson said. Construction unemployment is at 16.5 percent, compared to 9.6 percent overall.

Oregon’s unemployment rate has remained all year. Construction jobs have since March 2007. The most recent numbers show 77,200 remaining construction jobs, seasonally adjusted, a loss of 28,000 since 2007.

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An Oregon construction contractor brought some good news to a national forum on Friday. Don Laskey, owner of Laskey-Clifton Corp. of Reedsport, said stimulus projects have allowed him to keep workers employed and even add new workers.

Laskey joined a handful of contractors from across the country on a conference call hosted by the Associated General Contractors of America. Each had preserved or added jobs thanks to stimulus projects.

Laskey-Clifton, a heavy construction company founded by Laskey’s father in 1959, felt the effects of the recession last year. “We started seeing a decline in the number of jobs in 2008, in March or so, and a real increase in the amount of competition for projects,” Laskey said.

“That’s still the case today,” he said, “but we were able to get some asphalt paving projects totaling almost 5 million dollars.”

Those projects include a state stimulus job at Bullard’s Beach State Park and highway paving work for the Oregon Department of Transportation funded by the federal stimulus package.

With the stimulus projects, Laskey said, he kept 15 employees who otherwise would have been laid off. He now plans to hire at least seven, possibly up to 14, new employees.

Laskey typically employs 43 to 75 people, depending on the season.

Stimulus jobs are one of few bright spots in the ailing construction industry, AGC chief economist Ken Simonson said Friday. Nationwide, the loss of construction jobs slowed, according to U.S. Department of Labor statistics.

However, Simonson said, nonresidential construction will continue to suffer. “I suspect this shows home building is finally touching bottom while nonresidential construction still has a ways to fall.”

Construction unemployment, at more than 19 percent, is still more than double national unemployment, Simonson said. “Construction continues to bear a disproportionate share of the pain from this recession.”
Residential construction could pick up by the end of the year, Simonson said. Nonresidential construction has few strong points, however, and probably won’t pick up until mid-2010 at the earliest.

Those few strong points are energy construction – power plants, wind farms and transmission lines – military base realignment construction and stimulus work. Oregon has projects in each of these categories.
Stimulus work alone won’t turn construction around, Simonson said. “Even though the stimulus will be adding some jobs back, it’s not going to overcome the decline in these other areas.”

That said, each new project helps boost the local economy. Laskey said he’s able to support suppliers and subcontractors. “On the paving jobs, we’re creating many, many more trickle-down jobs,” he said. “It’s much larger than just our company.”

Similar findings have come out of studies, including one by George Mason University professor Stephen Fuller, commissioned by AGC. That study found that each billion dollars spent on nonresidential construction creates 28,500 jobs. Spread out over the broader economy, that billion dollars increases the country’s gross domestic product by $3.4 billion.

Surviving the recession means being able to adapt, Laskey said. Laskey-Clifton performs water treatment plant and bridge construction, along with underground work. Those areas haven’t seen much stimulus work yet, but they could in the future. In the meantime, Laskey-Clifton has been busy with paving.

“We’re fortunate we are diversified,” Laskey said. “This has been an economically depressed area since the 1980s, when the timber industry declined.

“We’re accustomed to that, and we’ve pretty much learned to adapt.”

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