Where Have We Been and Where Are We Going?: Wyoming Construction and Real Estate Industries by: Mike Evans Table: Deana Hauf

In the next twelve months we will look in depth at all of the Wyoming industries’ employment levels for the past several years and the projections two years into the future, major indicators or influences in each industry, and industries related to those in question. For example, this month we look at the employment levels for the Construction and Real Estate industries from 1991 to the present, along with two year projections. Also, we look at housing starts/building permits, interest rates, wages, population, Wyoming Department of Transportation (DOT) road costs, and home sales and how they affect employment levels for the industries in question and the general trend of the economy.

Examining the last two years of housing starts/building permits and home sales suggests how well the Wyoming economy is performing overall. New construction building permits are often used as a leading economic indicator to forecast the general direction of the economy¹  because they make up the largest part of the Gross Domestic Product (GDP), the Consumer Price Index (CPI)² , and fluctuates rapidly with the demand for housing. New construction affects the Building Construction (Standard Industrial Classification SIC 15) and Special Trade (SIC 17) industries first and foremost compared to all other industries. Looking at aggregated employment time series data, in this case measurement each month over a period of years, for past employment and wage interaction in these industries we see employment increasing over time and forecasted to continue growing (see Figure). As we will illustrate, the import on Heavy Construction (SIC 16) lags behind current construction events.

Previous employment, wages (total payroll), and housing starts for the Construction industry affect current and future total employment. But housing starts and home sales are also directly correlated with employment through the hiring of new workers, the purchase of construction materials and the eventual purchase of household appliances, furniture and other household items; all of which are a function of population growth. Housing activity also increases with declines in interest rates and will increase in the number of households and income growth. As interest rates fluctuate, housing starts, costs, and sales will move up and down causing employment in the Real Estate and Construction industries to fluctuate over the year. Traditionally, interest rate increases influence the Real Estate industry first then 6 to 12 months later affecting the Construction industry. For example, an increase in interest rates causes total housing costs to increase, along with decreasing the number of housing units built. Although housing starts and cost are correlated with the seasonal factor of weather in Wyoming, with the second and third quarters having the largest number of housing permits issued (See Table).

Employment in the Construction industry also includes heavy construction, particularly in road and airport construction. Looking at the dollar amount DOT projects let to contract, we can see the amount spent by DOT will also effect the Construction employment levels. The aggregated time series data for past employment and wage interaction in the Heavy Construction (SIC 16), employment has slowed considerably; one explanation of this slow down is due to the slow down in federal expenditures³ . Employment forecasts for the next two years are expected to remain flat in this industry (see Figure).

Looking at aggregated time series data for past employment and wage interaction in Real Estate industry (SIC 65) from 1995 to the first quarter of 1997 helps to explain more about the variability in employment (see Figure 1). Construction and Real Estate employment and wages peak in the summer and drop to their lowest in the winter because of the seasonal nature of the Construction industry. Employment hit a low in 1989 after the bust and started to rebound in 1990.

Two other contributors to fluctuations in housing starts and home sales includes the income and wage level of the population and composition of the population. As average income levels go up beyond inflation, consumer spending power goes up as well, increasing housing starts and sales.

Wages/total payroll explain the largest percentage of the total variation in employment due to the employment and wage correlation. For example, from 1995 to 1996 total payroll increased below the rate of inflation⁴ , but in the third and fourth quarters, due to bonuses and increases in Construction payrolls, total payroll for the state increased above inflation. In the fourth quarter, total payroll in Big Horn, Hot Springs and Park Counties increased substantially due to pipe line construction. Local impacts like these influence state totals dramatically. Also, Casper employment from 1995 to 1996 had no growth, but in early 1997 the Construction and Real Estate industries increased substantially over the year causing the total Casper employment levels to increase.

Table: Major Indicators and Employment for Each Industry

										Employment by Standard Industrial Classification (SIC)1
Year	Quarter	Home Sales6	Number of Building Permits for New Homes2	Total Cost of New Building Permits2	Prime Rate3	Average Weekly Wage1	Total Employment1	Population4	Department of Transportation Spending on Roads3	15	16	17	65
1995	1	10,200	226	$2,180,209	8.8%	$424	202,810	477,768	$58,747,262	3,004	2,851	6,008	1,577
	2	9,600	378	$2,268,405	9.0%	$430	214,680	478,622	$25,730,148	3,271	3,999	7,259	1,686
	3	10,600	377	$3,001,089	8.8%	$419	218,919	479,376	$29,463,393	3,662	4,758	7,566	1,803
	4	10,700	288	$2,173,534	8.7%	$447	212,459	479,928	$24,348,141	3,545	3,882	6,975	1,691
1996	1	11,100	365	$2,720,073	8.3%	$430	203,425	480,480	$38,326,274	3,008	2,601	5,936	1,663
	2	11,400	503	$4,503,137	8.3%	$434	215,763	481,032	$69,632,782	3,457	4,013	6,839	1,765
	3	10,300	400	$3,526,012	8.3%	$429	220,994	481,584	$18,166,136
	4	10,500	234	$2,651,620	8.3%	$465	214,612	482,136	$23,817,446
1997	1		211	$2,506,806	8.3%			482,688	$63,310,438

1. State of Wyoming, Department of Employment, Employment Resources Division, Research & Planning.
2. Bureau of the Census, Building Permits Branch, Manufacturing and Construction Division.
3. Kansas City, Federal Reserve Bank.
4. Bureau of the Census.
5. State of Wyoming, Department of Transportation.
6. National Association of Realtors.

Mike Evans is a Senior Economist with Research & Planning.

1 Wyoming Housing and Home Improvement Markets: An Economic Indicator, Mike Evans, Wyoming Labor Force Trends, December 1995.

2 Federal Register, June 17, 1997, Volume 62, Number 116, pp. 32826 and 32827.  

3 Federal Expenditures in Wyoming: A Partial Explanation of our Stagnant Economy, David Bullard, Wyoming Labor Force Trends, June 1997.  

4 Work, Pay and Consumer Spending, Part Two: Current Employment Statistics, Total Payroll and Sales Tax Collection, Mike Evans, Wyoming Labor Force Trends, June 1997.

 5 Current issue of the Wyoming Labor Force Trends, Nonagricultural Wage and Salary Employment.

This article was published in the Wyoming Labor Force Trends July 1997 issue.

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