Study: Stimulus Funds Ineffective So Far

The American Recovery and Reinvestment Act (the economic stimulus plan) appears to be having little influence on construction companies’ ability to expand payrolls to date, according to a new industry analysis of the effect of the federal program’s construction spending released by the Associated General Contractors of America (AGC). The slow pace of construction spending outside of the transportation sector is one of the main reasons for the relatively small impact on new hiring, the group noted.

“While the construction portion of the stimulus is having an impact, it is far from delivering its full promise and potential,” said Stephen E. Sandherr, AGC chief executive officer. “With construction unemployment at almost double the national rate, it is disappointing to see so many stimulus programs getting off to such a slow start.”

According to Sandherr, five months into a federal stimulus program that has approximately $135 billion dedicated to construction projects, there is little difference in hiring and purchasing patterns between companies doing stimulus-funded work and companies that continue to perform traditionally funded work.

For example, he noted that while 36 percent of construction companies with stimulus-funded work report plans to hire new employees, an almost identical percentage of firms without stimulus-funded work also plan to make new hires this year or next. He added that, while 36 percent of construction firms with stimulus-funded work plan to purchase new equipment and supplies, 43 percent of construction firms without stimulus-funded work report plans to purchase new equipment over the same time frame.

One reason the stimulus is having a limited effect on construction hiring and purchasing patterns, Sandherr said, is that, outside of the transportation arena, little of the stimulus’ authorized construction dollars have resulted in actual construction work. He noted that while the Army Corps of Engineers is responsible for $4.6 billion in stimulus construction funds, the agency has only obligated $715 million and paid out $84 million.

Meanwhile, the General Services Administration has only obligated $656 million and paid out $12 million of its $5.9 billion in stimulus construction funds. And only half of 1 percent of the $6 billion in stimulus funds available for the U.S. Environmental Protection Agency’s state clean water and drinking water programs has been put to use at this point.

He said the slow investment rate for construction funds was significant to hiring and purchasing patterns because some of the hardest hit segments of the construction industry are outside of the transportation area.

Sandherr said the stimulus was doing a much better job at this point in helping construction companies save existing jobs. He noted that 60 percent of construction firms with stimulus-funded work report have saved or retained jobs because of it. He also noted that construction firms with stimulus-funded work do plan to make larger equipment purchases than their colleagues without stimulus-funded work.

Among companies planning equipment purchases, 42 percent of firms with stimulus work say they will spend more than $500,000, while only 18 percent of firms without stimulus work will invest more than a half-million dollars in new equipment and supplies.

“The stimulus is clearly working,” Sandherr said. “It just isn’t working fast enough for many construction workers in many communities.”

Sandherr said it will take time for the economic stimulus to take full effect.

“The stimulus will keep our industry alive, but it will not turn around a trillion-dollar construction industry overnight,” he said.

The stimulus analysis was based on part of a survey of almost 1,000 construction firms nationwide conducted by the Associated General Contractors of America. The survey results were combined with the association’s analysis of federal and state agency stimulus activities and a review of employment data from the Bureau of Labor Statistics.

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