Construction recovery tied to personal income

U.S. construction firms have been alternately buoyed by the promise of big stimulus dollars and dismayed by how long some projects are taking to get approved and funded.

Reed Construction Chief Economist Jim Haughey says that a look at state-by-state personal income explains why contractors in some parts of the country will see a measurable economic recovery before others.

“It depends on how much slack, unused capital and labor, each region has,” he said.

By the end of last year, 15 states and the District of Columbia had recovered their recession losses in personal income.

“There is a huge gap from top, represented by areas like metro Washington, to the bottom states like Nevada and Wyoming,” he said, adding that the 7 percentage point gap is equivalent to almost two years of normal income growth.

He reviewed Bureau of Economic Analysis data on each state’s change in nominal personal income from summer 2008 to the end of 2009. Summer 2008 was just prior to the financial crisis that set off a long deep recession.

Reasons for large personal income losses seemed to show to have a geographic connection. Metro New York City and Massachusetts have much larger personal income losses than jobs losses because of huge bonus cuts in the financed and professional industries. These cuts are already being reversed.

The corn states also have relatively large personal income losses because of the drop in the price of corn. These are also now being reversed. Farm states are generally low on the list because farm income fell from a record high $89 Billion in 2008 to a trend level $57 billion in 2009. The Agriculture Department projects a gain to $63 billion this year.

The drop in farm income did not produce a lot of job losses or idle farm operations “It is not a significant barrier to turning economic growth into added construction demand,” he said.

Western States like Nevada and Wyoming stand out as severely depressed. But their losses were in extremely cyclical industries — tourism and coal — which are likely to recover quickly, he said.