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On the Precipice? Contractors Cut Jobs Ahead of Cliff

Construction employment declined by 20,000 jobs in November while the industry's unemployment rate hit 12.2 percent, according to an analysis of new federal data by AGC.

December 07, 2012

Construction employment declined by 20,000 jobs in November while the industry's unemployment rate hit 12.2 percent, according to an analysis of new federal data by AGC.

The construction employment figures likely reflect the fact many contractors have already cut staff and delayed hiring new employees because of the threat of the "fiscal cliff," according to results of a survey of member firms the association released today.

"It is discouraging that construction employment is still struggling after more three years of expansion in the overall economy," said Ken Simonson, AGC's chief economist. "As disappointing as these numbers are, they will only get worse if Congress and the White House allow huge tax increases and spending cuts to occur on January 1."

Construction firms employed 5.514 million people in November, down from 5.534 in October, Simonson noted; a decrease of 0.4 percent. The sector's overall employment in November is 6,000, or 0.1 percent, lower than one year earlier when firms employed 5.520 million workers. Both residential and nonresidential construction lost jobs in November, with nonresidential construction suffering significantly more job losses than residential construction for the month.

Residential contractors lost 3,600 jobs in November, as residential building contractors lost 6,800 employees while residential specialty contractors added 3,200 new workers. Nonresidential building contractors lost 15,900 jobs in November. Nonresidential specialty trade contractors lost 7,800 jobs for the months while nonresidential building contractors lost 4,300 jobs. Heavy and civil engineering construction firms lost 3,800 jobs during the month.

The threat of the fiscal cliff's tax increases and federal spending cuts are already having an impact on construction employment, according to a survey of 551 construction firms AGC conducted between November 28 and December 6. Fifty-four percent of firms report the threat of tax hikes has forced them to adjust their business plans. Among those firms, 67 percent report postponing hiring, 65 percent report delaying or cancelling capital expenditures and 32 percent report having already made layoffs.

Should tax rates increase, nearly two-thirds of firms (63 percent) that haven't already acted report they will change their business plans next year. Among the changes those firms would make, 62 percent say they will postpone or cancel capital expenditures, 59 percent say they will delay hiring and 31 percent say they will reduce the size of their workforce.

Association officials noted that allowing personal income tax rates to increase would have a significant impact on many construction employers. That is because nearly 70 percent of firms participating in the survey report they pay under the individual tax rate. Most of these firms are small – over half report employment fifty or fewer people – with little capacity to absorb additional costs, association officials added.

Even the $6 billion worth of cuts to federal construction programs that are part of the "sequestration" cuts planned for next year have impacted hiring and spending behavior among construction firms. Thirty-nine percent of firms report those spending cuts have already forced them to delay hiring, lay off staff and delay major expenditures. Meanwhile, 62 percent of firms that have yet to change their operations report that will make similar changes next year if the spending cuts actually occur.

"The fiscal cliff is already having a significant, negative impact on construction firms and their middle class workers," said Stephen E. Sandherr, AGC's CEO. "Considering the impact the threat of tax hikes and spending cuts is having already, it is clear that many more construction workers will suffer should Washington officials allow the fiscal cliff to occur."

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