| Construction "Boom" – "Bust"? |
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The bursting of the U.S. housing bubble is being reflected in falling home
values, rising foreclosures, and deteriorating credit conditions in U.S. and
world financial markets. Housing values went up and up so reliably that no one
hesitated to finance a mortgage backed by these rising values. However, what
goes up ultimately must come down and the downward spiral in the value of
housing is leading to drastic declines in new housing starts and a market
slowdown in the U.S. construction industry. The chart below looks at the U.S.
construction industry, as measured by labor earnings of all who have been
employed in the construction industry. Their earnings steadily and consistently
rose from around $200 billion in the early ‘90s to a high of $554 billion in
the first quarter of 2006, which turns out to be the peak level of activity in
the construction industry.
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Since its peak in the first quarter of 2006, construction labor earnings
nation-wide have fallen by about $27 billion, through the second quarter of
2008. However, problems in the U.S. housing industry and resulting declines in
construction are not hitting all areas equally. Some are getting hit very hard
with large declines, while other states and areas go relatively unscathed, at
least so far. The chart below shows state-by-state changes in construction
labor earnings since the peak in construction in 2006 through the second
quarter of 2008.
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In the chart, many western states are color-coded – Rocky Mountain states are in purple (except for Montana which is in red), Southwest states (Arizona and New Mexico) are in gold, Pacific Northwest states (Washington and Oregon) are in green, California and Nevada are shown in blue. The biggest slide in construction activity since the nation-wide peak is in California, where construction labor earnings have fallen by over $11 billion. This represents a 14% decline in construction labor earnings. Florida is next, followed by Arizona, where construction labor earnings fell by over $3 billion (a 21% decline). In the Rocky Mountain region, Colorado has had the largest decline, a fall of $942 million or 7.4%. Idaho’s decline in dollars is $278 million – a fall of 9.5%. Construction labor earnings have continued to grow in Wyoming, as well as Montana, although declines are now occurring in Montana more recently.
While the construction slowdown nation-wide started after the first quarter of 2006, this slowdown ultimately reached states in the Rockies at different times. Construction activity peaked in Colorado at the same time as nationally. Construction peaked in Utah and Idaho in the first quarter of 2007. And construction peaked in Montana in the second quarter of 2007.
Income generated by higher levels of construction activity, along with real estate sales and transactions, have been major contributors to overall income growth in the Rocky Mountain West. And the personal income base of the Rocky Mountain region has grown faster than any other region of the U.S. over the last decade and a half. So, as construction activity slows, it will have a major dampening effect on income growth in the region. It remains to be seen how deep and how long this slowdown will be.
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- Larry Swanson, Director, O’Connor Center for the
Rocky Mountain West
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