Katrina Alters Construction Employment and Supply Outlook

September 8, 2005 — According to a recent report from Ken Simonson, chief economist for the Associated General Contractors of America, Hurricane Katrina has radically changed the outlook for construction demand and construction inputs indefinitely. “Katrina may significantly disrupt supplies of construction inputs including: diesel fuel, other petroleum and natural-gas products, cement (9 percent of cement imports in 2004 came through New Orleans and downstream ports), and tires for heavy equipment (New Orleans is an entry point for imported rubber),” writes Simonson in his latest edition of “The Data DIGest.”

 

He says whether recovery from Katrina adds to demand for construction materials depends on the types and speed of rebuilding in damaged areas or incremental construction activity in areas where displaced people and businesses relocate. “So far, the storm has pulled work crews in to plug breached levees and canals and begin restoring power, communication, water, sanitation, and transportation infrastructure,” he explained. “But many of these workers were pulled off other jobs rather than being new hires.”

 

Last week, Simonson noted that the Bureau of Labor Statistics (BLS) reported nonfarm payroll employment rose by 169,000, seasonally adjusted, in August, slightly less than the monthly average over the past year of 187,000. These data, like other statistics so far, are based on pre-storm activity. The unemployment rate slipped to a four-year low of 4.9 percent. Construction employment increased 25,000 to a record 7,262,000. That was a gain since August 2004 of 277,000 jobs (4 percent), more than double the 1.7 percent growth rate for the overall economy.

 

In general, Simonson noted in a recent press release that the devastation wrought by Hurricane Katrina will have varied impacts on construction markets for the rest of 2005 and into 2006, commenting on the Census Bureau's report that the value of construction put in place in July totaled $1.1 trillion at a seasonally adjusted annual rate, unchanged from the June total that was 9.3 percent higher than January-July 2004.

 

“The gains were well distributed,” he said. “Private residential construction climbed 12 percent year-to-date, private nonresidential was up 5.3 percent, and public construction was 5.8 percent higher

 

These figures overstate “real” growth, explained Simonson, because they don't adjust for a large run-up that has occurred in the cost of cement, steel, copper, gypsum, and petroleum-based inputs. “Unfortunately, Katrina will push many of these costs much higher,” he said. “Contractors use a lot of diesel fuel for off-road equipment, their own trucks, and the multitude of deliveries of materials and equipment. Petroleum or natural gas is a key ingredient in asphalt, roofing materials, plastic pipe and insulation. And energy costs are built into the price of mining, milling, making, molding, and transporting metals, concrete and most other construction materials.”

 

Cement was already in short supply in 32 states and the District of Columbia last month, Simonson added. “The disruption to ocean, barge and rail transport from Katrina, and the loss of power to cement plants in the storm's path, will cut further into cement supplies,” he said. “At the same time, the urgent need to stabilize and rebuild roads, other infrastructure and buildings will increase demand for cement and other materials.”

 

Simonson says AGC has been urging the Commerce Department and the Southern Tier Cement Committee to reach immediate agreement on a way to allow Mexican cement into the Gulf states without the punitive 55 percent duty now in place. “Now the need for that cement is truly critical,” he said.