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Michigan Construction Outlook 2005

Date Posted: January 7 2005

As we flip the odometer on 2005, Michigan's unionized construction industry is still having trouble finding a solid foothold to climb out of the hole it is in.

A select few areas of Michigan have decent-to-very good prospects for construction employment. But much of the state is mired in a building slump that has gone for four or five years.

This is revealed in our annual informal and completely unscientific poll of construction activity in various regions of the Great Lake State. Full employment in any given region is very rare, and typical are unemployment rates in the union trades of 25-35 percent. A common theme throughout the state is the devastating impact of the loss of work opportunities stemming from the loss of Michigan's manufacturing plants.

Nationally, the U.S. construction industry surprised observers by jumping nearly 10 percent in 2004 - but Michigan wasn't in on that party. Michigan's unionized construction industry overall was a lackluster state of affairs in 2004, and with a few notable exceptions, 2005 overall doesn't hold much to recommend itself, either.

Here's the regional breakdown:

Ann Arbor - One of those notable exceptions mentioned above can be found here, where the amazing streak of good work opportunities in Washtenaw County continues.

"We're truly blessed to have the amount of work that we do," said Greg Stephens, business manager of IBEW Local 252 and secretary-treasurer of the Washtenaw County Building Trades. "And it looks as if work is going to carry into 2005, which looks like it's going to be better than 2004."

Remodeling at Pfizer's headquarters, a new University of Michigan Cardiovascular Center, expansion of St. Joseph's Hospital in Ypsilanti and the near completion of renovation work at GM's Willow Run Powertrain plant are only a few projects on a long to-do list.

The boom of work in the Ann Arbor area is now about 15 years old. At various times in the past few years, the area has hosted travelers, but they're currently down to a trickle.

"Every agent who makes a report at the Washtenaw County Building Trades says there's work here for all the trades," Stephens said. "I know what's going on with the employment picture in other areas of the state, and I truly feel sorry for them."

Battle Creek - Just before Christmas, IBEW Local 445 Business Manager Steve Franklin said the last job call the local received was on Nov. 4. He reports that 40 percent of Local 445 is unemployed.

"In the two-and-a-half years since I've been business manager, the best we've done is 25 percent unemployment," Franklin said. "As for 2005 - I always tell my members, 'where are we going to find work around here for 68 unemployed electricians?' They don't see it either."

There have been a few bright spots for the area. Dirt is currently being moved for a new $20 million Battle Creek Health System. Work at the Southwest Rehabilitation Hospital is about half-complete. Construction activity will be coming up at Harper Creek and Penfield High Schools.

Work has been very slow at three of the areas biggest employers: Kellogg, Post and Ralston.

"It would be nice if we could just reach a stabilization point in employment and then go from there and hope for the best," Franklin said.

Bay City/Saginaw - "Work for union contractors in the industrial and commercial side is slow, to say the least, in the Saginaw Valley," said Bob Barcia, project manager for Monarch Welding and Engineering and past president of the Bay Area Mechanical Contractors Association. "Over the past few years, work has gone down about 10 percent per year, and for 2005, about the best that we can hope is that we don't lose another 10 percent. And that's being optimistic."

The work simply isn't available in the area in the forseeable future, Barcia said. Not long ago, Dow Chemical and Dow-Corning consistently employed 150-200 Hardhats. That number has been significantly reduced, and work from the Total refinery in Alma has completely dried up - the facility went out of business.

Barcia said bidding activity for projects that become available "is very competitive." And among ongoing projects, "I can't think of any in the area that are long term, more than six or seven weeks," he said.

Detroit/Southeast Michigan - Every December, the area's construction outlook is detailed at the Detroit Economic Club in a speech by the chairman of the Associated General Contractors, Greater Detroit Chapter. This year's speech was given by James J. Cole, executive vice president, Skanska USA Building, Inc. Here are some excerpts:

"About a year ago," Cole said, "the news coming from Wall Street was that the economy was improving, and returning to some level of economic prosperity. And while there were indications during 2004 in other parts of the country we were experiencing an economic upturn, the construction industry in our region experienced one of its most difficult years in recent memory."

He said several projects that were planned never got started, including the three permanent casinos, and the refurbishing of Detroit's long-abandoned Book-Cadillac hotel and Michigan Central Depot.

"The casino projects alone would have generated more than $1 billion of new construction along with thousands of construction jobs," Cole said, "as well as permanent employment that follow. We are hopeful and optimistic that the obstacles faced will be overcome," and those projects will take place.

With the exception of the public school, housing, and highway construction, Cole said the construction industry in Southeast Michigan "saw little gain these past 12 months."

Projects that are ongoing include the new $200 million Federal Reserve Bank Building in Detroit's Eastern Market, and some $300 million in improvements to the Marathon petroleum refinery on the city's southwest side.

As for 2005, Cole said the national economy will continue to experience a rebound and the national outlook for the construction industry will mirror that rebound. But: "construction here in Southeast Michigan and across our state will lag behind the national picture, and may see slow, steady improvement."

Cole said nationally, economists appear confident that 2005 will set a new record for overall construction volume - even though prognostications can be flat wrong. A year ago, it was predicted that construction growth nationally would be flat, but in the last two months McGraw-Hill Construction has predicted that U.S. construction activity would rise by 9 percent for 2004.

For 2005, the increase in national construction ranges from 2% by McGraw-Hill to 6% by the U.S. Department of Commerce."

"I only wish, however, that the news for our state and region were as optimistic," Cole said. "Our local industry is still heavily influenced by the automotive sector. Their success is our success, and their struggles are often our struggles. The region and state must be committed to keeping the automotive industry here instead of another state because of a better economic package."

Cole also commented on specific sectors of the economy for 2005:

Manufacturing: "Other than general maintenance of existing facilities, we do not expect any major construction to take place. Some analysts are predicting 2005 to be a year of continued decline in manufacturing as both productivity and offshore investments impact domestic employment."

Public sector: "The construction of schools, roads and sewers, has and will continue to be a main source of work for many contractors and workers. Public building construction will be flat: Michigan continues to face budget deficits, which effect state building projects and dollars going to local governments for buildings and infrastructure.

"However, a $1.5 billion expansion project at Detroit Metro Airport, including a 97-gate terminal, and rebuilding of the old terminal is in the planning and early construction stages.

"Public school construction will continue at a solid pace."

Public works: "Spending for badly needed water and sewerage projects is expected to be $350 million next year. Work will continue on major upgrades to Detroit Water & Sewer treatment facilities and the expansion of storm water control systems."

Highway: "The Michigan Road Builders Association predicts the level of funding in 2005 to be $1.6 billion for state and local roads, which is about equal to 2004. Keep in mind that the $1.6 billion in construction means 76,000 jobs and nearly $10 billion in positive economic spin-off activity."

Higher education: "Ongoing construction of facilities at Wayne State and U of M, including student housing and teaching facilities, are worth noting. New housing and the Next Energy project are underway at Wayne State, and construction of a new law school, heart center, engineering building and public health facility are underway at U of M and will continue well into 2005 and 2006."

Residential housing: "2005 is anticipated to be another strong year for single- family housing, but multi-family housing seeing a decline."

Office market: "Did not see any significant new construction this year, and we won't likely see any in the near future."

Health care: The ability of St. John Health and Henry Ford Health to expand into new areas will open up opportunity for new construction. St. John and Henry Ford are expected to spend more than $250 million each at their planned facilities in West Bloomfield and Novi, respectively.

"Also, The University of Michigan alone is planning to spend upwards of $1 billion over the next five years in upgrading and building new medical facilities at its Ann Arbor campus."

Cole said: "In closing, the outlook for construction in our region is about the same we experienced (in 2004) - steady with some growth. We must be optimistic, and if several of the major projects we've been hoping for finally break ground, such as the Wayne County Airport, the permanent casino, and health care projects being planned we will see a very noticeable improvement."

Kalamazoo - "We're basically doing what we have to do in the Kalamazoo area to address the changes in the marketplace," said IBEW Local 131 Business Manager Pat Klocke. "We're now in a situation where our future work opportunities are going to be in residential and commercial as opposed to industrial."

Klocke said 2004 "went poorly" and about 45 percent of Local 445 is jobless. "A lot of this is being driven by cheap, nonunion labor out of the Grand Rapids area," he said, "who are putting cost pressures on the larger nonunion contractors, who are then being forced to bid in other areas, including ours."

The building of the 1,170-megawatt Covert Generating Plant was a boon to local construction workers - but that job ended in early 2004 and there is nothing on the horizon in the industrial segment of the economy that will be nearly as large an employer.

Speaking optimistically, Klocke said "we're going to try to make 2005 a good year" by actively pursuing commercial work.

Flint area - "We have a lot of work coming up," said Plumbers and Pipe Fitters Local 370 Business Manager Mark Johnson. "We were busy only a couple of months in the summer doing school work in 2004, but next year, and maybe even the next two years, look like they will be good for us."

The reason for the optimism: General Motors wants to spend nearly $1 billion on two plants in Flint. The steel is up on a new $400 million engine plant at the site of GM's old V-8 plant, and the automaker recently announced its intention to build a new $500 million paint plant at its Truck and Bus facility.

In addition, the building trades are performing some $90 million in upgrades for the Grand Blanc School District, and are doing major projects at Linden High School and Flushing High School.

"All in all, we're looking pretty good," Johnson said.

Grand Rapids/Muskegon - West Michigan Plumbers, Fitters and Service Trades Local 174 Business Manager Kirk Stevenson said that local consistently experienced a 30 percent unemployment rate in 2004

"There were a few spikes up in employment here and there, but unfortunately, 2004 was about the same as 2003," Stevenson said. "I hope we're going to turn a corner in 2005, but it's hard to see that there's going to be that much of an improvement."

Both he and Cindy Morse, executive director of the Western Michigan Mechanical Contractors Association, point the finger at the loss of manufacturing work - a familiar refrain throughout the state.

"Business has been down resulting in strong competition for the available work," said Morse. "The loss of manufacturing jobs in the area has had a definite effect on our contractors' workload." Added Stevenson: "The manufacturing base is leaving, every months it seems like another business is going to China, or wherever."

And when those manufacturing employers exit, they take away hundreds and thousands of man-hours from the building trades who would remodel their facilities.

One of the few bright spots for 2005 will be the installation of new pollution controls at the Consumers Energy J.H. Campbell Plant, which will run through the end of the summer.

Also in 2005, Hardhats will be working at Grand Rapids Public Schools, the West Michigan University Chemical Energy Building, Metropolitan Hospital and St. Mary's Hospital in Grand Rapids, Grand Rapids Art Museum, Sparta High School and Muskegon Community College

Some significant projects in the region in 2004 included the DeVos Heart Center, Muskegon Community College, Orchard View High School, East Kentwood High School, Spectrum Health Center, the Veterinary Research Facility, Ludington High School, the Grand Rapids YMCA, Caledonia High School, Whitehall High School and the Hope College Field Science Center.

Morse said a revised residential/light commercial contract has enabled more contractors to begin to work in those areas.

"The face of the mechanical business is changing," Morse said. "Contractors are continuing to face fierce competition. They are re-inventing their selves, in order to capitalize on other markets Contractors are restructuring to meaner and leaner organizations. They are working to network with existing and new perspective business partners. Western Michigan is experiencing a considerable amount of renovation of older structures which could generate work in our field. As manufacturing decreases, high-tech, medical, office, institutional and retail opportunities are becoming available."

Lansing - The ongoing construction of the massive GM Delta Township Plant is a mainstay in a relatively weak construction market in and around the Michigan's Capitol City.

"For us in 2004 we did about as well as the year before, and right now, things aren't too bad," said Laborers Local 998 Business Manager Dale Brzezenski. "I think 2005 looks like a pretty good year for us, but without the Delta Township plant, we'd be in pretty bad shape."

Just under 10 percent of Local 998's members are currently unemployed - and nearly a fifth of the local is helping to build the Delta Township plant. The plant is divided into a paint shop, body shop and final assembly. Construction work is expected to continue at the facility through 2006, and the erection of other "outsourcing" production facilities that will feed the plant are planned nearby.

Heat and Frost Insulators Local 47 Business Manager Craig Grigonis said the Lansing area "is one of the few bright spots in the state," even though there is tremendous room for improvement in construction activity.

Work is wrapping up at the Boji office complex next to the State Capitol Building in downtown Lansing and at the new Lansing Community College Technical Center. Construction is also proceeding with the new luxury suites at MSU's Spartan Stadium.

Covering pipe over much of the Lower Peninsula outside of Southeast Michigan, members of Local 47 overall experienced "a terrible year" in 2004, Grigonis said.

Traverse City - "We had a fair amount of people out, but a fair amount of our guys worked pretty steady in 2004," said Bernie Mailloux, business manager of IBEW Local 498. "It wasn't all that awful."

Commercial and residential work makes up the bulk of work opportunities for Local 498 members and the 25 contractors with whom they work. The trades recently completed a Lowe's in Traverse City, and construction on Wal Mart stores - with some union trades on board - have begun or will start in Cadillac, Gaylord and Houghton Lake.

There's always talk of more casino work - and there are some ongoing renovations at a casino is Manistee - but there is little actual work going on.

Mailloux said a number of jobs are small one- or two-person projects, with large, intricately wired homes a growing portion of their work.

"From what I'm seeing there's just not a lot going on out there for 2005," Mailloux said. "And the competition is fierce for the work that is available."

Upper Peninsula - It says a lot when the 2004 construction market is described as being "not a terrible year for us."

That's how Tony Retaskie, executive director of the Upper Peninsula Construction Labor-Management Council, described building activity in the U.P. last year.

Retaskie said while man-hours for union labor were down slightly from 2003 to 2004, the Upper Peninsula still had some decent employment opportunities - and the work picture should improve somewhat in 2005.

Significant health care construction projects are ongoing at the UP Medical Center and Marquette General Hospital, as well as at Dickinson Memorial Hospital in Iron Mountain.

The trend of upgrading dorm rooms at universities is employing the trades with projects at Michigan Tech and Northern Michigan University. Large projects are also expected in 2005, with major emissions-reduction work slated for the Presque Isle Powerhouse and a 21-day summertime shutdown at Mead Paper in Escanaba.

"Some trades are doing better than others," Retaskie said, "but we're not doing too badly here, compared to some other areas in the state. And it looks like 2005 is going to be a little better than 2004."

WORKING IN Michigan's busiest area for construction, Pat Duffey and Dennis Zielinski of Plumbers and Pipe Fitters Local 190 mark up sections of gas pipe in the yard of Infrasource Underground Services in Ypsilanti.