Contractors in Badger Stateface mixed fate in ’08

By Ken Simonson

Wisconsin contractors know it’s been a cold winter, even if they haven’t set foot in the Arctic cold. By December, construction employment in the state was down 0.5 percent from December 2006.

But those figures may not be as bad as they seem, at least for nonresidential contractors. Nationally, total construction employment slumped 2.9 percent in 2007, yet a closer look shows most of the decline came from residential builders and specialty-trades contractors.

Employment actually held steady in the nonresidential building and heavy and civil engineering fields.

There seems little doubt that nonresidential projects held up better than home building in Wisconsin, as well as nationally.

The U.S. Census Bureau reported in February that national nonresidential construction spending climbed 16 percent in 2007. Of the 16 types of structures classified by the U.S. Census Bureau, spending on all but religious structures — the type most closely tied to new housing — rose last year.

This year promises to be quite different, however. Several categories of nonresidential construction still look strong, but others are slowing or turning negative. In addition, materials costs, which had slackened their rate of increase in 2006 and much of 2007, are turning up the heat again.

Five types of structures remain in hot demand at the moment though:

• Spending on power construction, a category that had been dormant earlier in the decade, spurted 27 percent in 2007 and could match that growth rate this year. In Wisconsin, that includes traditional power plants, wind farms and transmission lines.
  
  
• Energy construction will be vibrant, particularly with expansions and environmental retrofits to big refineries. Wisconsin is likely to see more action in alternative energy, such as biodiesel plants. But ethanol projects, a hot item in most of 2007, have fallen out of favor.
  
  
• Communication construction surged late in 2007. Soaring usage of cell phones and personal digital assistants, plus bandwidth-intensive transmissions of music and videos, have created demand for a new generation of cell towers and “server farms.”
  
  
• Hospital construction has been booming for several years all over the country. Technological changes in the way patients are admitted, diagnosed, treated, operated on and how they recover have forced existing hospitals into elaborate rebuilding projects. Also, areas with new populations are getting hospital facilities for the first time.
  
  
• Higher-education construction benefited from demand and supply factors. The demand comes from a record number of college-age students in the country. The supply of funds has grown as stock market gains, until recently, swelled university endowments and capital campaigns. But Wisconsin’s public colleges and universities may have a harder time next year, as state revenue growth slows in a weaker economy.

Slowing revenue growth — and downturns in municipalities hit by falling property tax receipts, plant closings or declining population — will constrain many types of public construction.

There likely will be a big slowdown in construction of properties that require bank financing, such as office, retail and hotel construction.

Total nonresidential spending should still be up in 2008 but probably by less than half as much as in 2007. Moreover, much of that apparent increase will reflect higher costs for diesel fuel, steel and labor.

Some materials will be cheaper in 2008 though. Gypsum prices have been falling at a 20 percent rate since home construction started shrinking in mid-2006. The slide will continue as gypsum makers bring more plants online.

Lumber and plywood prices also will be under downward pressure until home building revives, which is unlikely to occur before the end of 2008 at the earliest.

Labor costs overall may not accelerate from the roughly 4 percent increase recorded in 2007. But there will be something of a bidding war for tower crane operators and other skilled crafts needed for the hot construction categories of 2008.

Thus, 2008 will be a year of very divergent results, in Wisconsin as well as nationally, depending on a contractor’s customer base.