10 Things to Know About the Construction Industry Supply Chain

Construction activities affect nearly every aspect of the U.S. economy. Here are 10 things worth knowing about the construction industry:

1. Contribution to GDP

In 2008, the construction industry’s contribution to gross domestic product was $582 billion, or 4.1 % of GDP. In 2008, the value of construction put in place was $1072 billion ($750 billion for new construction, $323 billion for additions, alterations and reconstruction).

2. Breakdown of $1072 Billion Market

Private construction encompasses new homes and improvements and non-residential buildings for manufacturing, offices, lodging, religious, educational and health care purposes. Also, non-residential construction includes farm buildings, land improvements and construction by private telecommunications, railroads, utilities and airfields. For public construction, there is residential (public housing) and non-residential, with educational buildings the biggest share. Other public construction expenditures include outlays for highways, streets and sewer systems.

3. Contraction and Growth

The value of construction put in place declined by 6.8 % from 2007 to 2008. This decline was caused by a 34.3 % decline in new residential construction and a 13.6 % decline in residential renovations. The remaining sectors of construction, commercial/institutional, industrial, and infrastructure, grew by 5.9%, 34.0%, and 11.5% respectively.

For the seven year period 2002 through 2008, the commercial/institutional, industrial, and infrastructure sectors grew more or less consistently. In real terms, expenditures in the commercial sector grew from $301.8 billion in 2002 to $384.4 billion in 2008.

The cycle of real expenditures for the residential sector highlights the magnitude of the current housing crisis. Real expenditures for the residential sector first rose sharply, from $481.1 billion in 2002 to $680.8 billion in 2005, declined gradually in 2006 (to $661.9 billion), and then fell precipitously in 2007 (to $519.7 billion) and 2008 (to $357.4 billion).

4. Maintenance and Repair Activities

Expenditures for maintenance and repair amounted to $134 billion in 2008. They declined by 9.4 % from 2007 to 2008.

5. Manufactured Products

Approximately 30% of the volume of construction work—$329 billion—was due to the demand for manufactured products (materials, components, and systems). These expenditures decreased by 7.1 % from 2007 to 2008.

6. Impact on Employment

Construction has a major impact on U.S. employment. In 2008, 11.0 million persons were employed in the construction industry, which is 7.6 % of the total U.S. workforce.

7. Recent Construction Job Losses

During the 2007 to 2008 period, the construction industry shed 882,000 jobs representing 7.4 % of all construction jobs. No other industry lost more than 3 %.

8. Composition of Workforce

The composition of the construction workforce differs from much of the U.S. workforce due to the large number — 1.8 million– of self-employed workers. In contrast, manufacturing, which employs 15.9 million workers, has only 308,000 self-employed. Nonemployers (businesses without paid employees subject to federal income tax) constitute about 2 million and represent 74.46 % of all establishments in construction. Establishments with 1 to 4 employees constitute 15.17 %. Nonemployers, together with those with 1 to 4 employees, represent nearly 90% of all establishments.

9. Construction Work By Business Size

Nonemployers and establishments with 1 to 4 employees each perform about 9% of total value of business done. In other words, establishments with 5 or more employees, which constitute 10% of all establishments, perform 82% of total value of business done.

10. Fluctuations in Employment

Construction employment is affected by both the weather and the business cycle. Year-to-year changes result in layoffs and hiring surges. The cyclical nature of employment produces shortages in many highly-skilled trades. These shortages adversely impact productivity. Declining productivity is exacerbated by the influx of unskilled laborers from abroad, many of whom find their first jobs in the construction industry.

Source: Office of Applied Economics Building and Fire Research Laboratory, Gaithersburg, Maryland and U.S. Department of Commerce National Institute of Standards and Technology; Metrics and Tools for Measuring Construction Productivity: Technical and Empirical Considerations, By Allison L. Huang, Robert E. Chapman, and David T. Butry.