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Why you still can't find a builder

Home building is in free fall but construction employment is steady, a sign housing won't tank the job market.

By Chris Isidore, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- There's no doubt the bottom has fallen out of the home-building market in the last year. But if you're trying to find an out-of-work carpenter or skilled craftsman today, you'd think the nation was still in the middle of a building boom.

Employment in home building has fallen 4 percent from a year ago, according to government figures, but construction employment overall has slipped just 0.2 percent over that period. The difference? A 2.7 percent jump in the number of workers on construction sites for hospitals, roads and other projects aside from homes and residences. And the shift may be even more dramatic than those numbers suggest.

The modest declines in employment have occurred at the same time that housing starts have tumbled 16 percent from a year ago, and those under construction are down 13 percent.

While many economists have been waiting for the downturn in home building to bite into the broader labor market, there's a good chance that Friday's employment report won't show much evidence of that.

Economists are forecasting that overall, U.S. employers added 135,000 jobs to payrolls in May, up from 88,000 in April. The unemployment rate is forecast to remain at 4.5 percent.

The ADP national employment report for May, compiled by the payroll services firm, has been seen by some on Wall Street as a barometer for the government job report. The latest reading estimated that private sector payrolls grew by 97,000 in Many, up from 61,000 in April.

As for construction, the report suggests there was about a 13,000 drop in employment in that sector in May, about a 0.2 percent decline. That's about half the drop seen in construction employment in the April reading.

"It would seem that builders are keeping these workers on, even though construction has taken a hit," said Joel Prakken, chairman of Macroeconomic Advisers, which compiles the ADP report, although he cautioned, "I wouldn't be surprised to see more declines in the coming months."

Still, experts in the field suggest several reasons for the strength in construction employment despite the housing downturn.

Some of it is due to the shift of workers to non-residential construction jobs, some of it is due to employers not wanting to let go of skilled craftsmen in case the homebuilding market picks up.

And part of it may be due to the large use of immigrant labor in the construction industry. If contractors and subcontractors were not reporting off-the-book employees to the government during the housing boom, their absence now won't be missed in the figures.

Clearly the market for construction spending outside of housing has stayed strong even in the face of the housing downturn. In fact the cooling in the housing market has freed up the workers and other resources that were putting a crimp in non-residential construction a year or two ago.

David Hanson, a senior vice president with Walbridge Aldinger Co., a national contractor focused on non-residential construction, said his Tampa, Fla., office is finding it a lot easier to get the subcontractors needed than it was a year or two ago.

"The supply and demand of labor seems to be in balance now," he said. "Subcontractors are looking for work. Where it was difficult to get two bids in 2005, last year we got three or four. This year it's six or eight."

Many of those subcontractors, such as carpenters, electricians, plumbers or concrete and wallboard contractors, can move easily from residential work to working on government buildings, nursing homes or hospital expansions that Hanson's firm is now building.

"A concrete block doesn't know if it's a wall of a house, or the wall of a shopping center," he said. "The same people are going to lay the block."

And Hanson said without the constraints on labor and materials seen in 2005, his firm had a record year in 2006 and is ahead of last year's pace this year.

The government figures on construction spending show the same thing. Thursday the Census Bureau reported that while residential construction tumbled 14 percent in April from a year earlier, non-residential construction jumped nearly 13 percent.

Home contractors and subcontractors are also reluctant to cut the skilled workers they have, just in case there is a pickup in demand for new homes, said John Silvia, chief economist with Wachovia.

"It's typical, not just in construction but in many industries," he said. "When economic growth slows down, companies are concerned about retaining workers in case it's a short-term slump. That's why productivity can fall off."

Then there's the harder to measure question about the use of illegal immigrants in construction. The Labor Department's household survey, which samples workers and unemployed people rather than employers, estimates that 25 percent of construction workers were foreign-born in 2006, up from 23 percent in 2005.

And the number of people who told the labor department they were working in construction was about 27 percent greater both years than what construction employers were reporting.

David Kelly, economic advisor to Putnam Investments, said he thinks all the construction employment estimates are missing many of the illegal immigrants working in the sector, and that therefore the gains in employment were probably greater than reported during the housing boom, and the drop of employment now is also probably greater than the numbers show.

Kelly and David Seiders, chief economist for the National Association of Home Builders, agree with Silvia that it can take a while for builders and subcontractors to start to cut back staffing when there's a downturn. Seiders said builders will often try to cut hours before cutting staff.

"You try to keep things rolling along as long as you can. You don't want to lose your best carpenter," said Kelly.

Still, some layoffs are becoming public. Pulte Homes (Charts, Fortune 500), the nation's No. 4 home builder, said this week it's cutting 1,800 jobs, or 16 percent of its work force. That came after cuts equal to 25 percent of staff over the last year.

Most of the Pulte workers being cut, though, are salespeople, real estate buyers and other support personnel, since Pulte employs relatively few craftsmen, using subcontractors instead. Top of page