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Industry Issues: Examining the Economic
Impact of Katrina and Rita
AGC predicts 'exceptional' changes
in materials and fuel prices, labor and demand
for construction services
By Ken Simonson Chief Economist AGC of America
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Ken Simonson,
Chief Economist
AGC of America |
The impact of Hurricanes Katrina and Rita on the economy
and the construction industry will be profound, long lasting
and nationwide. A variety of challenges to materials, labor,
equipment and the demand for construction services will confront
contractors, depending on their location. Here's a brief guide
to the hurdles ahead.
Oil and Natural Gas
Contractors across the country felt Katrina's fury immediately
as diesel prices jumped 30 cents a gallon in one week. Hurricane
Rita soon followed, pushing prices up 35 cents to a level
of more than a dollar a gallon above last year's prices. These
increases hit contractors hard every time they fill the tanks
of their off-road machinery or construction trucks, and most
of all, in the fuel surcharges for thousands of deliveries.
Rita also more than doubled the damage from Katrina by shutting
down oil and natural gas production from platforms in the
Gulf of Mexico and onshore refineries and gas processing plants.
The resulting shortages are likely to affect supplies and
the prices of asphalt, roofing materials, insulation, membranes,
coatings, plastic parts and especially PVC pipe.
The price increases and delivery delays could worsen throughout
the winter heating season because residential and commercial
heating oil and natural gas customers will receive priority
over petrochemical plants that make resins for plastics.
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Register now for the 2006 Economic Outlook for Construction
Materials audio-conference Featuring AGC's Chief Economist
Ken Simonson on Tuesday, Dec. 6 from 2 p.m. to 3:30
p.m. EST.
Three of the country's leading experts on cost and
supply issues of construction materials-AGC's Ken Simonson,
John Cross of the American Institute of Steel Construction
and Ed Sullivan of the Portland Cement Association-will
discuss what's happening today and what to expect in
2006.
They'll assess the likelihood of another steel price
spike, tell you how widespread cement shortages are
likely to be next year, and predict what other material
worries you'll have concerning cost and availability.
Register now at www.agc.org/outlook2006 or for more
information, contact Dasha Brock at brockd@agc.org or
call 703-837-5408. AGC member price, $149; retail price,
$179.
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Labor
Specialized labor was in high demand in the stricken areas,
especially workers who could repair levees, pumps, utilities,
refineries and transportation infrastructure; drivers who
could deliver heavy equipment, temporary housing and nonresidential
facilities; and workers for debris removal, salvage and demolition.
But the question remains whether the demand for residential
and commercial construction workers in the storm zone will
match pre-Katrina levels. There were 177,000 construction
workers on payrolls in Louisiana and Mississippi in mid-August,
many of whom are now adding to the available labor pool in
states across the country.
Demand for Construction
The storms will force consumers nationwide to spend more
than they anticipated on fuel for their cars and homes this
winter. That is likely to depress expenditures on other goods
and services and slow the rate of expansion of stores, offices,
wholesale and distribution facilities and the manufacturers
that supply them.
But in cities where thousands of refugees and businesses have
made their home, demand for construction will pick up as vacancy
rates fall and the added buying power kicks in.
The hardest area to predict construction activity is in the
path of Katrina. Debris removal, demolition, levee strengthening,
and perhaps new building codes and creation of no-build-areas,
will slow the pace of recovery. Private owners will have to
find funding and insurers willing to bet on their rebuilding.
Many residents and businesses will not rebuild until they
know that jobs, schools, doctors and other necessities are
in place.
Just as Katrina and Rita were exceptionally powerful storms,
their impact on the economy and on the construction industry
will be equally exceptional. Both the physical landscape and
the industry will be re-shaped for many years to come.
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