In today’s news, the story that construction tells about the economy in the United States is very unsettling. Meanwhile, profits for Skanska are down, but the company still has a healthy backlog in the United States. Above that, according to Governor Abbott, construction of the border wall in Texas has begun. Additional comment from the Governor: “Texas is building our own border wall.”
Construction Reveals America’s Economy
Original Source: The Story Construction Tells About America’s Economy Is Disturbing
Odd: Construction is worsening. Consider our modern technology. New power tools, computer modeling, teleconferencing, modern machinery, prefabricated materials, and global shipping. We could build more, faster, and cheaper than before. We cannot. We don’t.
In the 1950s and 1960s, construction productivity—how much more could be done with the same amount of employees, machinery, and land—grew faster than overall productivity. Even as economy-wide production rose, it began to decrease after 1970. Divergence is wild today. According to government figures, construction workers in 2020 produced less than in 1970. Compare that to the economy as a whole, where worker productivity rose 290 percent between 1950 and 2020, or to industry, where productivity increased ninefold.
In “The Strange and Awful Path of Productivity in the U.S. Construction Sector,” Austan Goolsbee, the newly appointed president of the Chicago Federal Reserve and a former chairman of the Council of Economic Advisers under President Barack Obama, and Chad Syverson, an economist at the University of Chicago’s Booth School of Business, investigate whether this is a statistical anomaly and what went wrong.
Their paper is eliminated. First, they examine if construction has received less capital investment than other industries. Nope.
They then evaluate if we’re mismeasuring construction, which would suggest we started overestimating the labor or materials the building industry employed in the 1970s or underestimating how much it built with them. The most intriguing test is how many residences per worker, adjusted by square footage. There, the trend is flat or slightly positive for single-family homes, but construction productivity is still considerably below the rest of the economy.
The global slowdown supports the assumption that this isn’t an American recordkeeping anomaly. Between 1996 and 2019, the OECD tracked construction productivity in 29 countries. 40% lost productivity. Syverson supplied me with the data, and only the Slovak Republic, Latvia, Estonia, and Lithuania—poorer countries rebuilding after the fall of the Soviet Union and the Soviet bloc—had productivity growth of more than two percentage points every year.
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What is it if not underinvestment or statistical illusion? Goolsbee and Syverson appear confused. The Wharton School of Business analyzes building rules among cities, and Goolsbee and Syverson tested regulatory load against construction productivity. The relationship was weak. They examined state productivity rates. Alaska, Idaho, Wyoming, Delaware, and Michigan performed poorly, Syverson said. Georgia, North Carolina, South Carolina, Virginia, and Colorado were relative stars. That complicates the red-blue-urban-rural scenario.
Syverson doubts a single response. “I don’t know how you achieve 50 years of decline without many problems,” he said. Everyone has a pet theory. Everyone has a different pet.”
Economists Goolsbee and Syverson. Industry insiders may know why. I called Ed Zarenski, who heads Construction Analytics and worked in construction as an estimator for over 40 years. Zarenski, who studies construction costs and company volume, agrees. He agrees there is no single cause. However, he recalls incidents about the building industry when he started and now.
“When I started in the ’70s, you did one estimate on a project,” he said. If you won, you started construction. When I left in 2014, you did three estimates for every task before bidding. That’s the job cost.”
He suggested the jobsite. When I started working, occupational safety features were barely evident. Workplace safety has changed drastically. To avoid falling off the building, you walk on a defined path instead of a beam. By the time I retired, every job site required 15 minutes of calisthenics before work. That was absolutely unproductive, yet it reduced worksite injuries during the day.”
Paperwork is everywhere. “Today’s work takes hundreds more personnel in the office to track and complete,” he said. “The level of data that you have to give to the government, insurance companies, and owners to verify you’re meeting all the job site regulations has increased. So you need more people to generate that.”
Zarenski doesn’t think this is horrible. It’s worth 15 minutes of daily calisthenics to prevent back problems for life. The issue is that every step in the process—from back-office analyses to on-site rules—requires more work.
Syverson and Zarenski reminded me of Mancur Olson’s 1982 book “The Rise and Decline of Nations.” Olson’s productivity mystery begins: After WWII, Germany and Japan’s cities were bombed, their populations demoralized, and their economies destroyed. “Whether these abjectly vanquished communities would be able to provide themselves with even the rudiments of survival” was the question of the era, Olson argues. West Germany and Japan grew quicker than Britain, which had won the war.
Economist Olson pioneered research on group cooperation. He used it to explain why affluent nations stagnant while chaotic nations thrive.
He realized that collective action organizations are hard to form. Once they appear, they stay. “If organizations and collusions for collective action normally originate only under favorable circumstances and acquire strength over time, a stable society will witness greater organization for collective action as time passes,” Olson says.
Olson believes that organized groups lead to increased distribution battles, lobbying, complex regulation, intergroup bargaining and negotiation, and complexity. “Special-interest organizations and collusions lower efficiency and aggregate revenue in the societies in which they operate and make political life more divisive,” he says.
Classic economics text “The Rise and Decline of Nations” is not correct. Japan went from an economic model kid to growth laggard. Olson’s claim that the US is more sclerotic than Germany is false. Olson doesn’t know why so few crisis-stricken nations recover.
Olson’s main mistake is assuming groups organize around redistribution. Olson nearly missed the post-materialist revolution in affluent countries’ politics. Many groups unite to protect the environment, improve safety, preserve their communities, or promote their views. It’s mostly good. Affluence is a blessing, not an illness.
But Olson, who died in 1998, is right—this gift has a price. Costs rise in sectors with many consultees. This explains construction productivity issues. Building code-only stuff is easy. Factory matter manipulation is tougher but manageable. Building a new building, subway tunnel, or roadway requires navigating neighbors, communities, existing roads, emergency access vehicles, politicians, prized park views, earthquakes, and more. Olson’s thesis may be most prevalent in construction. Olson’s argument regarding prosperous nations fits international facts, too.
Zarenski reviewed this argument. After I finished, he said I couldn’t see it over the phone but was eagerly nodding. “So many individuals want some say over a project,” he remarked. “Each apartment needs so many parking spaces. This distance from sightlines is required. Use this much recycled water. You didn’t have 30 people in a hearing room for a permit 40 years ago.”
This is regulated. Power operates informally in high-income and low-income housing buildings. There’s a reason Washington, D.C.’s Southwest has seen more construction than Georgetown. Richer residents know how to organize—and they frequently already have the organizations, lobbyists, and access to oppose it.
Syverson stated this was closest to his position on the construction slowdown, but he didn’t know how to test it against the statistics. “A million veto points,” he remarked. “There are many mouths at the trough that need to be fed to get anything done. Many people can clog things.”
This also explains Syverson and Goolsbee’s surprising conclusion. They found that states with high construction productivity don’t gain market share. If people and material organization are the main challenges of building, that makes little sense. Assuming local restrictions, community concerns, neighbors’ concerns, and politicians’ interests are the frictions makes more sense.
Developers dominate politics in the cities I’ve covered. They must.
Zarenski said, “My view is the guys that know the system have a much easier time getting through the system. “They know ahead of time what they have to bring to the party and how to speak to those people and satisfy them, so it goes a lot smoother for them.” However, knowing one city or state and building ties with its important stakeholders and decision makers may not guarantee success in another.
How to boost construction productivity? Uncertainty. As countries get richer and less frantic for growth, construction should become safer, more community-friendly, and more environmentally sustainable. However, building better would help solve many of America’s challenges, from decarbonization to affordable housing.
Skanska profits fall, US backlog rises, optimism remains
Original Source: Skanska profits drop, US backlog and optimism remain high
Skanska’s Q4 2022 earnings fell 2.4% to 3 billion Swedish Krona ($284 million). Skanska earned 7.7 billion SEK in 2022, down 6% from 2021.
On Friday, the firm reported higher construction revenue. Q4 sector revenue was 42.7 billion SEK, up 14% from 2021. Construction sales grew 17.6% to 156 billion SEK.
Skanska’s record 229.8 billion SEK backlog and 29.4 billion SEK in U.S. Q4 order bookings buoyed CEO Anders Danielsson. On Friday’s results call, he stated, “We are in a very strong position, we can continue to be selective, we can continue to keep our discipline and go for initiatives that we know have been successful.”
Skanska reported 7.28 SEK in Q4 EPS and 18.62 SEK for 2022.
Skanska said its estimates for non-residential U.S. building improved over the previous quarter. Other regions—Europe and the Nordics—and sectors—residential and commercial property development—had similar expectations.
“It’s encouraging to see… “We see optimistic signals that U.S. inflation may go down,” Danielsson remarked during the conference call.
In November, Skanska won the $167 million Brooklyn Bridge restoration project and several other U.S. projects, including a $480 million bus depot in Queens and a $83.6 million life sciences complex for George Mason University in Virginia.
CFO Magnus Persson said Q4 brought a lot of the industry’s headwinds, including inflation and material and labor shortages, but Skanska has survived the storm.
Persson said, “We anticipate to continue delivering at a high performance level in the U.S.
Gov. Abbott announces Texas border wall construction
Original Source: Texas border wall construction underway, Gov. Abbott says
Governor adds, “Texas is building our own border wall.”
After months of negotiating with private property owners, Texas has resumed erecting a wall along the Mexican border.
On Sunday, Texas Gov. Greg Abbott posted a video of the wall’s construction on social media.
The governor tweeted, “Texas is building our own border wall.”
After reaching agreements with private property owners, Texas will resume border wall construction. Abbott claims
A crane moved a wall panel into place and workmen plugged it in in the tweet’s video. “Securing the border” was Abbot’s sign.
On Jan. 30, Abbott held a press conference near the border to unveil the first-ever border czar, veteran Border Patrol agent Mike Banks.
Since President Biden took office in January 2021, the border has seen unprecedented amounts of illegal crossings. Abbott has criticized the administration’s management of the border.
In December, he announced the wall’s resumption.
State officials and private property owners reached an agreement to build infrastructure on their land after months of negotiations.
After the Texas Facilities Commission awarded Southwest Valley Constructors Co. a $167 million contract, the border wall building project has been underway for months. A roughly seven-mile border wall will be built in Del Rio.
Summary of today’s construction news
Overall, we discussed a look at the construction industry that tells a troubling tale about the state of the American economy. Building quality is deteriorating. Think about the modern equipment we have. Innovative power tools, 3D modeling software, video conferencing, state-of-the-art gear, prefabricated components, and worldwide distribution. We were able to construct more buildings at a lower cost and in less time. Unfortunately, we simply cannot. That’s not something we have.
Meanwhile, Skanska saw a decrease in profits of 2.4% in the fourth quarter of 2022, with revenues of 3 billion Swedish Krona ($284 million). Skanska’s earnings in 2022 was 7.7 billion SEK, down 6% from the previous year.
Moreover, Texas has resumed construction of a wall along the border with Mexico after months of negotiations with private property owners. Texas Governor Greg Abbott shared a time-lapse video of the wall being built on social media on Sunday. The governor of Texas announced the construction of a border wall via a tweet.