Skilled Trades Shortage Stymies Housing Recovery

Now that new homes are beginning to sell again, recovery in the housing market has met a new foe - shortages of skilled construction tradespeople willing to give up the alternative jobs they struggled to find during the hard times of double digit unemployment in our industry, and return to construction work. Some trade contractors report they are only able to fill 75% to 80% of the journeyman trade jobs needed to take on all the work offered to them.

The National Association of Home Builders reports that the five states experiencing the strongest recovery in housing starts are also finding severe shortages of framers, roofers, carpenters, and plumbers, a labor market problem which curtails even faster growth in new housing construction. Though construction industry unemployment still far exceeds the national overall unemployment rate of 7.5%, and employment in home building has increased only 5% from its 2011 all time low of 2 million workers, tradespeople who found other work during the five year industry slump are understandably reluctant to come back to the seasonal and cyclical construction workforce. Housing starts increased 47% in the last 12 months, but construction employment over the same year long period rose only 3.7%.

Half of the NAHB members surveyed report they have had projects delayed because of shortages of journeyman tradespeople, and 15% say they have refused to bid on some projects offered to them because they could not staff the jobs. Furthermore, new home price increases increased 12% from a year earlier, to an average of $247,000.00 driven by higher wages needed to attract skilled trades people back into the construction job market. NAHB estimates there are as many as 116,000 unfilled skilled construction jobs, and also that 22% of the home construction workforce is made up of foreign born workers.

NAHB chief Economist David Crowe predicts that increasing prices for construction materials, along with the skilled labor shortage, will prevent a return to the peak home construction rates of 2002-2006 until at least 2016. "We need to rebuild the infrastructure of the industry," Crowe concludes.

Government Gridlock Keeps Stalling Job Growth

Politicians all say the economy needs more jobs. Job growth depends more than anything else on certainty about government spending and tax policy. Yet our political leaders can’t get their act together long enough to take any action letting us know what future government policy will be. As a terrible result of their inaction, we have little job growth and slower economic growth.

In 2009, the American economy declined 3.5%. In 2009 Congress enacted a package of significant stimulus spending, and in 2010 the American economy grew 3.0%. Then the 2010 Congressional calendar was used up in government budget gridlock, with a number of quarter by quarter emergency budget measures passed just to keep the bureaucratic doors open in Washington, D.C. As a result, American economic growth slowed to a paltry 1.7% in 2011, and talk of a “double dip” recession was rampant.  Learning nothing from the first year of gridlock, Congress continued to pass band aid interim spending measures all through 2011, with no action on those appropriation bills which set government budgets for more than a year into the future. As a consequence, businesses that depend for some of their revenue on having government as a customer couldn’t plan long term expansion. Furthermore, Congressional stalemate on long term tax policy stifled business investment decisions. This ongoing gridlock isn’t helping the American economy, capping first quarter 2012 growth in our economy at 2.2%.

Consumers have been tightening their belts for three years now, and first quarter 2012 consumer spending is up 2.9%. Most of that gain is represented by higher motor fuel prices and increasing auto sales, neither if which is a reliable long term engine of future progress. That consumer spending growth is offset by a 3.0% drop in government spending for the quarter, along with a 2.1% drop in business investment, stifled by ongoing tax policy uncertainty coupled with expiration of some investment tax breaks on December 31, 2011. Economists tell us we need year long economic growth exceeding 4.0% to bring down unemployment by one point. Because consumer spending is 70% of the economy, job growth is the only thing that will get us back on track to a “healthy” overall growth rate of better than 2.5%.

Every day our Representatives and Senators leave those important long term appropriations measures and tax reform bills sitting on the tables in committee rooms costs the economy months and months of sluggish growth.

Is Chicago Area Construction Recovering?

Maybe. A little bit.

The Chicago and northeastern Illinois area had 14 of the top 35 construction starts in the Midwest in 2011, totaling nearly two billion dollars. The top 35 starts were in Illinois, with 14, Indiana, Missouri, Ohio and Wisconsin. The Chicago area top starts include 5 residential projects totaling $616 million dollars, 4 higher education projects totaling $457 million, two health care projects totaling $319 million, one infrastructure project at $300 million, and two industrial projects totaling $290 million, for a grand total of $1.982 billion in very major new construction jobs breaking ground before year’s end.

These top projects were garnered by contractors with household names in the region, including McHugh with 3 projects, W. E. O’Neil with 2, Benesch, Pepper, Lend Lease and Power with one each, and five less well known builders grabbing the rest of the work. Two of the higher education projects are at the University of Illinois, one at the University of Chicago, and one at DePaul University in Chicago. The new hospital construction is located in suburban Oak Lawn and Hoffman Estates, and the infrastructure project is phase 2 of the Wacker Drive reconstruction in Chicago’s loop, which no one driving or walking in the downtown area could possibly miss.

Add to these projects the $7 billion in Chicago Infrastructure Trust projects estimated yesterday by Mayor Emmanuel in a speech at the West Side Laborers’ Union Hall, and you have some significant employment for skilled tradespeople in the northeastern Illinois area. While still awaiting City Council approval, the Chicago Infrastructure Trust already has one project on the drawing boards – energy efficiency improvements to existing City of Chicago buildings – and includes acceleration of construction of two runways at O’Hare International Airport, all to be paid for by City cost savings or user fees – no new taxes on Chicago’s citizens. Mayor Emmanuel also mentioned repair of many miles of aging City water mains, and construction of new parks and schools, without any specifics as to locations or how the projects will be funded by the trust.

Mayor Emmanuel predicted in his speech that the Chicago Infrastructure Trust projects should create 30,000 jobs in the coming years. Add that $7 billion in construction spending to the nearly $2 billion already underway, and you have the beginnings of some sort of construction recovery.