Prizio Construction Inc

This quote is extracted from an article by Allan H. Meltzer, writing for the Wall street Journal.  In it he captures the essence of what plagues us in the construction industry and in the economy in general.  No one seems to know which way things are going, although opinions abound with various levels of support.  Here is just a sample of what my computer offered up for today:

Sustained Recovery Underway in 46 States – Jim Haughey of Reed Construction Data. He shows economic growth of varying amounts in most states for tre last three months, but there is no uptick in construction activity to go with it, at least not yet.

Construction Jobs Fall in 25 States – AGC Smart Brief. With access to the same data in the same week two highly respected sources of construction news see things very differently.

Some see hope for 2011 in various articles, but Nobel Prize-winning economist, Paul Krugman, just came out with his new book, The Return of Depression Economics, in which he reportedly sees a sustained economic downturn the likes of which we have not seen since the 1930s.

Locally, the most recent update to the Chapman University Economic Forecast was reported as mixed with only a slow recovery through 2011. This sort of splits the difference but adds little to the needed certainty we seek to get a real recovery started.  

What’s a contractor to do? The decision to cut back further of even call it quits torments most contractors daily. Trying to get a clear reading on which way things are going and when is all but impossible.  If there is one thing we really need from the federal and state governments it is a clear direction forward.  Until we get that, the people who are thinking about building will be very cautious and contractors will be very frustrated.

Not the end of the world, although it has at time felt like it, but the end of the recession in the construction industry. This is according to 555 construction industry executives recently surveyed by Engineering New Record. In their analysis of the survey results there has been a notable rise in the level of optimism for next year among the respondents.  That said, some 53% still felt that things had not yet reached the bottom.

This survey mirrors our feeling. We are seeing an increase in backlog for 2011 that we have not previously seen, giving us hope that we may be able to finally hire some of our people back soon. However, like many of the surveyed executives, we are not so sure that the industry as a whole is really improving much. We are grateful for the improvement in our own situation but are not so sure it is indicative of any industry-wide trend.

The Bureau of Labor Statistics just released monthly unemployment numbers for May 2010, which showed construction unemployment going up from 19.2 to 20.1%.  In other parts of the same report overall unemployment dropped from 9.9 to 9.7% on the dubious strength of 400,000+ new census worker jobs. However, the stock market was not impressed with the paltry 40,000 new private jobs created versus the 180,000 that had been hoped for. With construction still going the wrong way, that only made things worse.

Locally, Chapman University recently updated their annual economic forecast for Orange County, CA (no link available for update). They are predicting an overall job loss for Orange County of some 18,000 jobs for the year and called construction a drag on the recovery, which apparently is quite accurate.

Small and medium sized companies in general and construction companies in particular, continue to be plagued by a lack of available credit, putting a damper on private construction work throughout the nation. Public projects tied to state funding are likewise suffering from a lack of funds, mainly because the states, especially California, are in big financial trouble. Federal stimulus money has helped some, but not as much as we had hoped. We as an industry are not creating jobs, because there is just not very much need for construction services right now. We can only hope that this changes soon.

Hanley Wood’s Builder Online web site announced that overall construction spending was up by 2.7% in April of this year. Unfortunately it is still some 10% behind April 2009, but at least things are moving in the right direction. We are much in need of any good news we can get, so we will take it. Housing, which is up 3.4%, is leading the way in the current recovery.

Associated Builders and Contractors (ABC), the non-union counterpart to AGC, also announced in a recent press release, available through LinkedIn, that construction backlog is up 4.5% in the first quarter of this year. Again, this is up from way down, but it sure is better than down even farther.

An AGC newsletter article, throwing a bit of cold water on the nascent festivities, announced that construction employment had declined in 292 out of 337 metro areas between April 2009 and 2010. This represents a lot of pain for a lot of people and their families who used to make a good living from construction, and until this changes, it is hard to feel too good about any recovery. Still, movement in the right direction is a good thing, and employment is always a lagging indicator.  We don’t expect anything that looks like a real recovery to make itself felt until next year, but we are thankful for these early signs of progress, even if it is small and qualified progress.

The Plain Dealer (Cleveland) recently ran a press release, also picked up in AGC SmartBrief , extolling the virtues of BASF’s new concrete patching and repair material, Zero –C (for zero cracks). It is just now available to contractors. It is mainly intended to repair cracks and spalls in older masonry and concrete buildings, and promises a significant improvement over other currently available products.  They have touted its development a comparable to finding a cure for cancer, but we suspect that no matter how well it works, it benefit to mankind will be somewhat less profound.

A well deserved jab at their over-the-top marketing is clearly in order, but if Zero-C works as well as they say, it will be a welcome addition to the arsenal of products that concrete repair specialists can use to fight the never-ending problems they encounter.

I just completed a 2-day course in preparation for the LEED Green Associate exam. As a concrete contractor I am not one of the more heavily involved players when it comes to working towards LEED certification for the projects we do, but it seemed like a good idea to learn more about the process. The course presented by Everblue covered a lot of ground, and gave me a good overview of the LEED process. It focused on the design and construction of commercial buildings, and did not deal much with homes, neighborhoods, or tenant improvements, which are covered in other courses.  I would recommend it to anyone who wanted to get started working towards eventual LEED AP+ certification.

One thing that I learned is that as a concrete contractor there are only a few things that I can do to help earn points towards LEED certification. Our potential impact is in the Materials and Resources section where a total of 14 regular points and 6 exemplary performance points are available.  Of these we can have the greatest influence on these items: Regional Material and Certified Wood, with a lesser impact on Recycled Content. This means that we can have a real impact on 5 regular points and 3 exemplary performance points. With a minimum of 40 points needed for LEED certification, our company definitely has a role to play, but the fate of a project’s certification is not really in our hands in most cases.

The use of fly ash as a cement replacement is much talked about these days when LEED comes up, but I found that since it is a pre-consumer recycled product it only gets half the normal credit for recycled content.  And, considering that fly ash would make up at most 200 pounds of a 4,000 pound yard of concrete (5%), it doesn’t get you very far towards your goal when even one point requires 10% recycled content. This was a bit disappointing.

Recent improvements in construction unemployment have been getting a lot of publicity, but it is important to bring some perspective to the numbers.  AGC Smart Brief recently cited an article in the Witchita Eagle (Kansas) that notes the 40,000 new construction jobs created since the first of the year. Forty thousand jobs are most welcomed and appreciated but, compared to the 2.1 million jobs lost, do not represent the makings of a major improvement.

Our local experience in southern California bears this out. Stimulus spending is bringing some relief to unemployed construction workers, but the much hoped for private work that employed so many workers in the past is still very much missing in action.  And state budget problems still imperil non-federal public works spending. 

It is further worth noting that stimulus spending primarily benefits union contractors who pay prevailing wages, and more particularly, contractors who already have experience doing federal work.  Non-union workers and contractors are still fighting over a tiny amount of private work, and are ill-positioned to cash in on stimulus spending.

In an ENR.com article today, it was announced that the EPA has now proposed a draft rule (in effect recommended) that allows for the continued recycling of ash from coal-fired power plants. To the concrete industry this means that we will still be able to get fly ash as a partial replacement for cement. This has become more significant lately, as the use of fly ash is one of the few things concrete contractors can do to earn LEED points on sustainable projects. Without fly ash concrete would be at an even greater disadvantage than it already is.

It is also good news for the power industry, because fly ash (coal ash) was about to he declared a hazardous material, which not only could not be sold for use in concrete, but would now have to be disposed of a toxic waste. This would greatly increase the cost of generating electrical power with coal.

This all came as a result of the failure of a liquid coal ash impoundment in Tennessee in 2008.  Because the ash got into a local river, and in all truth made quite a mess, the EPA was considering very stringent handling requirements for this material, and its designation as a hazardous material. Under the proposed new rule power plants will still see some added requirements for safely handling fly ash, but at least the ash will escape the kiss of death that a hazardous material designation would bring.

Coal-fired power plants just dodged a major bullet, and to a lesser but still important extent, so did we.

Health insurance costs are going up, up, and up some more. Admittedly this is not really about concrete construction, or even construction in general, but it is a major concern to contractors. With Obamacare now the law, we are starting to see the effect of what he and the Democrats in Congress have wrought.

Blue Cross and Blue Shield here in California are looking for increases in the range of 40% as business owners renew their policies. Other companies are sure to follow suit. We are looking at a 40% increase ourselves as we face a June 1^st renewal. But that is just the beginning.  Blue Shield is telling us to expect a 200% increase over this year’s premiums by the time 2014 rolls around and all the various Obamacare phase-ins are complete. In other words, an employee who now costs $500 per month to insure will be costing $1,500 per month by 2014.

As we prepare to enter negotiations with the Carpenters’ Union next week, we expect this to become a major issue. We are currently paying $3.95 per hour for health and welfare benefits, but we expect to see that increase substantially. The real battle is likely to be over whether contractors absorb the increase or if workers must take at least part of it out of their wages. These are not likely to be pleasant conversations.