Construction continues surge despite rising costs

Vermont Business Magazine, Sep 01, 2004 by Barna, Ed

Perhaps the best way to describe this summer's construction season is simply to say that it's in swing.

A variety of economic indicators suggest that a pretty good year is under way, regardless of such factors as chronic rainy spells, soaring prices for some materials, and an iffy national economic recovery that has yet to impress Wall Street. Checks in the field with contractors and other sources - if they were not too busy to talk - indicates that the outlook is generally upbeat.

That's not to say boom times have arrived. Any positive prediction has to be hedged by looking at the possible effects of war and terrorism, especially on the oil supply - a situation that already appears to be damaging the truck industry to a degree that can affect some construction projects. The materials shortages, when created by a combination of foreign demands and a weakened American dollar, seem like more than minor irritants. Interest rates have begun to edge up, not enough yet to choke off investment, but enough to make many observers nervous. If the economy in general tails off again, state tax revenues will decline as well, and that will affect road and bridge work.

Still, it's hard to be too gloomy about a construction season in which some construction companies are constantly on the lookout for qualified personnel to hire. Anyone who drives any distance through Vermont this year is as likely to see scaffolding or a crane as a deer.

Numbers

The FW Dodge Construction Report figures, based on contracts awarded, show the uncertainties of the picture. If one were to look just at the June figures for Vermont, the outlook would be decidedly negative: nonresidential construction down 51 percent from the year before ($85.6M to $42.1M) and nonbuilding work down 6 percent ($35.8M to $33.5M), though residential construction jumped 23 percent ($48M to $593M).

Overall, there was a drop of about 20 percent, from $169AM to $134.8M. New Hampshire, by way of comparison, saw an increase of 4 percent, from $242.9M to $2533M.

Yet a look at the half-year totals tells a different story. Vermont's nonresidential work rose 35 percent over the 2003 total through June ($200.2M to $270.9 M), residential 37 percent ($207.8M to $285AM), and nonbuilding 146 percent ($77.8M to $191.8M). Overall, there was a 54 percent increase, from $485.8M to $748AM.

And New Hampshire? Nonresidential down 10 percent, nonbuilding down 5 percent, and total construction up only 6 percent ($1,125AM to $1,192.5M) despite a 19 percent increase in residential construction.

The Department of Employment and Training employment figures show a relatively stable situation. The revised numbers of June 2003, not seasonally adjusted, show 16,550 construction workers; in June 2004, preliminary figures that also were not seasonally adjusted, the total was again 16,550.

A somewhat more positive note was sounded by the third quarter Economic Outlook Survey of the 120 CEOs who make up the Vermont Business Roundtable. For the next six months, 59 percent expected employment to increase and 51 percent thought capital spending would increase, better numbers than in the previous quarter. Overall, they expected about 4.1 percent growth in Vermont's Gross Domestic Products for 2004.

Lisa Ventriss, the VBR's president, was quoted by the Rutland Herald as saying, "I think what we're seeing is that there's a heartbeat and it's steady, but it's not demonstrating any real exuberance at this point in time."

Richard Heaps, who together with fellow economist Arthur Woolf puts out the Vermont Economy Newsletter, said, "The economy is doing fine. What we mean by that is, unemployment is quite low. We're at a point in time where there isn't a great demand for huge job growth."

"The economy is growing, but growing slowly," Heaps said. "This is not too bad, given that our population is also growing very slowly."

Fast growth would quickly bring labor constraints, he observed - a point that relates to what will be said later about the housing market. Officially, there was a period in 2001 that is, looked on as a brief recession, but looking closely at those numbers "things weren't as bad as we thought they were," Heaps said.

Now the state has stopped losing manufacturing jobs, and health care and social activities are definitely showing job growth.

"I think things are better than most people feel," he said.

One seasoned observer who now has time to think about the bigger picture is Otto Engelberth, who has stopped down from running Engelberth Construction in Colchester.

"I think the Vermont economy is positioned to be very strong," he said, "but it will be a little bit different economy than we've had in the past. We're positioned to be a haven for knowledge workers," who can telecommute and who prefer to reside where the quality of fife is better than in many urban areas.

Construction "sort of chugs along," Engelberth said - and to his mind, that is not such a bad thing.

"We're not a big enough market so we get the herds of contractors coming in," often "leaving a shambles in their wake."