Washington Post: Can Construction Hiring Propel the Washington Region’s Economic Recovery?

February 12, 2013

Although steady job growth in the construction sector has recently spurred optimism about the strength of the nation’s economic recovery, economists and local construction executives say the industry is poised to make only modest contributions to the growth of the Washington region’s labor market this year.

These forecasts reflect the unique composition of the Washington area economy: Its housing market has room for improvement, but not as much as in other parts of the country where it plunged to greater lows. And the steady demand in housing is tempered by inertia on projects in the commercial and federal sectors, where the desire for new construction has been dampened or put on hold as prospective clients grapple with government belt-tightening and the prospect of “sequestration,” a series of deep, automatic federal budget cuts.

“While I see [construction hiring] being positive, I don’t think it’s going to grow dramatically as a share of the economy” in the Washington region, said Ken Simonson, chief economist for the Associated General Contractors of America.

Simonson projects that construction employment will grow 5 percent nationwide in 2013, but he said he would “shave a few percentage points off” that figure for this region.

Economists said the relative strength of the local residential construction market is largely contingent on one key factor.

“D.C.’s population growth has been nothing short of amazing,” Simonson said.

Indeed, the Census Bureau estimates that the District’s population surged from about 602,000 to about 632,000 between April 2010 and July 2012, a 5.1 percent increase. The nation’s population is projected to have grown just 1.7 percent in the same period.

Many of the newcomers are young professionals, and their arrival has helped create robust demand for multifamily housing developments.

Bozzuto Construction, a Greenbelt-based firm that focuses on multifamily and mixed-use development projects, said the appetite for these types of properties will translate into hiring this year.

Michael Schlegel, the company’s president, said Bozzuto plans to hire 10 to 15 salaried workers in 2013 for jobs such as superintendent and project manager. He also expects 1,500 people will be working on Bozzuto construction sites on an average day this year, a jump from the 1,150 that worked on an average day in 2012.

While residential construction projects are expected to spur local construction hiring, the same can’t be said for projects in the federal and commercial space.

Amid federal cuts, government agencies and the companies that contract with them are likely to shrink their real estate footprints as they trim their workforce. James Bohnaker, associate economist for Moody’s Analytics, said this would increase the amount of available office space on the market, thereby decreasing demand for new construction. And even those who are interested in breaking ground might want to wait until uncertainty over the sequester passes.

Will Thompson, vice president and district manager for Hensel Phelps Construction’s Mid-Atlantic division, said his firm’s need to add workers in this region is contingent on whether it is awarded contracts for several large federal and private projects.

But in the current climate, “everybody’s kind of on hold and waiting,” Thompson said.

Data from 2012 offer a framework for the modest forecasts for the sector’s hiring this year. Construction added just 1,800 jobs in this region last year. And according to data from the National Association of Home Builders, there was a 34 percent increase in 2012 in the number of building permits issued nationwide. But in the Washington area, the uptick was much smaller: 18 percent.