Times Watch: Tough market puts builders on edge
Seattle Times business reporters
Construction is one of those stalwarts of the economy, an industry where work spawns other work, where jobs create other jobs.
Right now, construction is in the dumps with home building, a few office buildings and public construction holding things up. Some big deals are falling through or stalled, such as the work stoppage on the Technology Tower and Lincoln Square projects in Bellevue.
While the big jobs get the headlines, the ripple effect in the industry spreads to the subcontractors who do the bits and pieces of a major project, ranging from electrical wiring to providing portable buildings for job sites.
"A year and half ago, we had 170 workers in the field," said Martin Holberg of Expert Drywall, Woodinville. "Today we have maybe 80."
In addition, bidding on jobs has gotten so competitive Holberg has had to cut margins to the bone. "We're not doing anything crazy," said Holberg. "We're selective — we don't want to work at a loss or at no markup."
Holberg's experience ripples through the construction industry, an example of the reverse action of what economists call multipliers. The construction industry has a multiplier of 2.06, meaning in good times each primary construction job — such as a foreman, carpenter or electrician — creates slightly more than two other jobs in the service economy, such as grocery clerks or baristas.
But in tough times, the multiplier works in reverse, meaning for every construction job lost, two other jobs in the economy go with it.
The number of jobs lost in construction in the Seattle area since the peak two years ago rivals Boeing's cuts, where the workforce has declined 12 percent to 68,000.
Construction jobs in the Seattle-Bellevue-Everett area are down 16 percent to 72,900, according to the state Employment Security Department.
That is good news to contractors and companies such as Labor Ready that provide temporary help to construction sites — there are plenty of people looking for work and many of them have the skills and work ethic coveted by employers.
"The quality of workers is very high," said Steve Cooper, chief financial officer for Tacoma-based Labor Ready. "They are very strong and very capable."
Perspective over time
Job levels, however, remain high compared to the construction slump of a decade ago and even the boom that preceded that, said Roberta Pauer, local economist with the state Employment Security Department.
In May 1990, construction employment peaked at 63,000 jobs and by mid-1993, it was down to about 57,000, she said. By the spring of 2000, there were nearly 82,000 construction jobs in the area. Those figures include the people involved in constructing commercial and residential buildings, such as carpenters, masons, roofers and concrete workers. The figures also include those building highways and water and sewer lines.
"The downturn in construction comes off an exorbitantly high level, in residential and especially commercial building," Pauer said.
"Although I do not think the construction recession is over yet by any means, it is worth remembering" the unusually high level of construction activity that preceded it, she said. "The overheated economy of Puget Sound generated construction projects beyond what a normal business cycle would see, or be able to accommodate."
Helping to keep the industry afloat are new government buildings, such as the federal courthouse, public library and municipal building going up in downtown Seattle and the continued strength of the residential real-estate market, which is being fueled by historically low mortgage rates.
"It's not unlike 10 years ago. For a long time there were no commercial office buildings going up in Seattle or Bellevue," said Bob McCleskey, president of Seattle-based Sellen Construction. The company, which has grown from 420 to 480 employees since the beginning of the year after cutting back last year, has been able to weather the latest downturn by having a diverse client base, which includes several area hospitals and still-growing Microsoft, McCleskey said.
Young workers unprepared
The swift downturn in overall construction jobs has been especially tough on younger workers who were caught by surprise and expected the boom times to last, said Al Vanderlugt, a business representative for Seattle-based Carpenters Union Local 131, which has 1,600 members.
"They were buying big four-wheel-drive pickups and I'd tell them to watch out, it's not always going to be that way. They would look at me like I'm some decrepit old man," Vanderlugt said with a laugh.
"It's been kind of tough to watch. It would be easier if you could see a little more relief on the horizon," he said.
Many of the construction workers are migratory "boomers" who travel around the country from hot spot to hot spot. Because much of the country was booming up to a year or so ago, the usual flood of workers from other areas wasn't as strong.
Holberg of Expert Drywall is concerned about what's ahead. "We have a backlog of work now," he said. "The numbers are picking up a bit, but that may be just seasonal. We're worried about six months from now."
Holberg, who with a partner bought the 50-year-old business earlier this year, does not see the jobs ahead to bid on that would keep work coming in even at today's diminished levels. He said the industry should "stay this way for another 12 months."
Slump may continue
Other TimesWatch statistics help show why the slump in construction is likely to continue. Vacancy rates have risen as fast as a high-rise elevator, reducing dramatically the need for new buildings and new construction.
For example, in the past two years vacancy rates in downtown Bellevue have soared from about 2 percent to about 26 percent; in downtown Seattle, it's up from less than 1 percent to about 13 percent.
Building owners are seeing their returns diminish as well — average asking office rental rates in downtown Seattle dropped from $34.69 per square foot in May 2002 to $29.58 last month and landlords are also throwing in often-costly improvements such as remodeling office space to attract or keep tenants.
With construction acting as a drag on the economy, it could slow whatever recovery that may emerge in the months ahead. Other TimesWatch statistics provide some hints that the economy may be turning, at least on a statewide basis.
A statewide indicator such as leading economic indicators, prepared by the Office of Forecast Council, declined a slight 0.1 percentage points in April compared with March. Last week, reports showed the state unemployment rate dropping slightly to 7.1 percent in May from a revised 7.2 percent in April. But the Seattle-Bellevue rate remained unchanged at 6.6 percent.
The figures increasingly point toward the beginnings of a statewide recovery this summer while the Seattle area remains mired in a slump.