I.E. Job Market Turns Up As Construction Industry Pushes Toward The Light

By: Benjamin Wright

December 12, 2011

Over the past few months, the Inland Empire has seen a sharp uptick in employment with the construction industry - believe it or not - playing a role in that equation.

Construction was, without a doubt, the hardest-hit sector of the recent recession, falling almost 60 percent from its peak employment level. The fact that the industry has begun to turn around is a weighty sign, and speaks to the overall state of the Inland Empire economy.

An overall snapshot of the region shows that after declining steadily for more than four years, the I.E. has added 22,100 jobs since June, a surge of 4.9 percent on an annualized basis. There are now more jobs in San Bernardino and Riverside counties than at any point since August 2009. What's more, the gains are spread across a variety of industries, including professional and business services, local government, wholesale trade, and construction.

While building activity in the single-family market is still sparse, other segments of the construction market have bounced back strongly - namely, healthy growth in remodels and alterations. Indeed, with large numbers of homeowners still underwater on their mortgages and unable to move, many are instead upgrading their homes with new kitchens, bathrooms and other amenities. The value of these projects has increased by more than 20 percent since late 2009.

At the same time, alterations to nonresidential structures - such as warehouses and office buildings - have increased by 40 percent. These trends have led directly to new construction jobs.

Furthermore, many construction workers who are employed in the Inland Empire work on projects in Los Angeles and Orange County. And while these areas have also seen an upswing in remodeling activity, the real story has been multifamily housing. Over the past two years, both Los Angeles and Orange County have seen new - and enormous - demand for multifamily units, leading to sharp increases in construction permits.

The demand stems in part from continued population growth, but also because many households have moved from owning to renting after going through the foreclosure process.

Compared to the first three quarters of 2010, the first three quarters of 2011 saw a 40percent increase in multifamily permits in Los Angeles and a 73percent increase in Orange County. This in turn has led directly to construction jobs for businesses and residents of the Inland Empire.

Moreover, the demand for new housing in surrounding regions will inevitably migrate to the I.E. The Inland Empire was one of the most over-built during the boom, so currently demand remains low. But over the past few quarters, permits have begun to find a bottom, indicating a level of stabilization in the market. Furthermore, foreclosures and defaults are trending down as the region continues to burn off its "shadow inventory," and the population continues to expand. Ultimately this will lead to a supply squeeze, and new construction will begin again.

In the current economic climate, the construction industry can be seen as a bellwether for the overall economy. During a recession, hard-pressed industries tend to overshoot to the downside, careening past any reasonable equilibrium. So when trends in those industries turn around, it is a sign that broader conditions are improving and employers must bolster their payrolls to meet new demand.

This is what we see happening in the markets of San Bernardino and Riverside counties as evidenced by recent increases in employment across a wide array of sectors.

Aside from creating new, much-needed jobs, changes in the construction industry point to a broader recovery that is firmly in place and that is more than welcome as we head into 2012.

Benjamin Wright is an economist at Beacon Economics, an independent economic research and consulting firm. Learn more at BeaconEcon.com.

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