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Job cuts drop abruptly in May

Insight and Analysis of Construction Industry Trends

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Jim Haughey avatar

The jobs report is consistent with the Reed Construction Data GDP forecast of a marginal decline in the summer and a small pickup in the fall. It is also consistent with our construction spending forecast for a turn up in construction spending by yearend.

The slower decline in employment from April to May is understated by the top-line job counts – a drop from 504,000 to 345,000 job losses. The first estimate for April was a 539,000 job loss which was net of 90,000 temporary workers hired by the Census Bureau. With these adjustments the decline in job losses was from 629,000 to 345,000.

The path back to a stable jobs count will be rocky.  So far government hiring has ended but job cuts have not yet begun.  The steepest drop in tax receipts in several decades assures that net layoffs are coming soon.  The layoffs will more than offset fattening up the bureaucracy with hiring funded by the stimulus plan and the 20% federal budget expansion.  Also, manufacturing has several more ugly months ahead. A new surge of layoffs is just ahead for the auto companies and their suppliers.

However with the auto industry now run from Washington, the job cuts may be much less than private managers would make.  The jobs are not saved; the layoffs are just deferred. A recent announcement from Representative Barney Frank (D-MA) illustrates how public corporations are operated.  Rep. Frank talked to President Obama’s hand-picked GM CEO and arranged to have 60 GM layoffs in his district postponed for fourteen months. Several hundred Congressmen have GM, Chrysler or parts supplier jobs in their districts. All 535 members have angry dealers set to lose their franchises.

A small decline of 6,500 temporary jobs was buried in the details of the report.  Job cuts in the 100,000 range have occurred in recent months.  This is typically the one of the first industries to cut jobs at the onset of a recession and one of the first to add jobs as the recession winds down.

The 59,000 construction job cuts were primarily in the heavy market.  This includes 9,000 layoffs by heavy general contractors and probably most of the 30,000 layoffs by nonresidential subcontractors. Clearly the construction stimulus program is still being overwhelmed by falling state and local government general and fuel tax revenue and cutbacks if private facility capacity needs. Nonresidential general contractors cut only 1,400 jobs. While the value of starts is half of the peak level last summer, monthly jobsite construction spending is off only 3% after rising slightly in the last three months.

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