The Importance of Construction to State Economies

Associated Builders and Contractors (ABC) is proud to announce the launch of its state-by-state economic analysis. Below is analysis of the value added by the private construction industry in each state from economist Bernard Markstein. ABC will also provide monthly analysis of the construction job market and unemployment rate of each state from Markstein beginning Wed., April 1, 2015, in addition to ABC’s existing national economic data and analysis.
Executive Summary
From 1997 through 2013 (the latest year for which annual data are available), the value added by the private construction industry as a percentage of national gross domestic product (GDP) declined from a high of 6.14% (in 1997 and 1998) to a low of 3.69% in 2011 and then rose to the still-too-low 3.73% in 2013. Although this is an accurate look at the sector, it understates the impact of the construction industry on the economy.
Because these numbers are based on a value added measure, these numbers don’t include demand for building materials; transportation services to deliver materials to a construction site; financial services for financing projects and purchases of projects; or sales and leasing once a project is completed. They also do not take into account the ripple effects from workers purchasing products and services with their income from working on a project and buyers and renters purchasing items to be used in a newly completed structure.
If we take these into account, it conservatively adds another 2-3% to the impact of the construction industry on the economy. Using this model, the top five states for construction as a percentage of state GDP in 2013, in order of highest to lowest, were:
• Mississippi
• Hawaii
• Louisiana
• North Dakota
• Montana

The boom in the energy field benefited four of the five states (Mississippi, Louisiana, North Dakota, and Montana) in terms of construction related to fracking (especially in North Dakota and Montana) and refineries and ports (Mississippi and Louisiana). Louisiana also benefited from significant industrial construction in 2013. The resurgence in tourism following the recession and the sharp increase in lodging construction benefited Hawaii and, to a lesser degree, Louisiana. The inflow of money from defense spending benefited Hawaii and Mississippi. Residential construction also rebounded strongly in Hawaii in 2013.
The bottom five states in 2013 from lowest percentage of state GDP to highest were:
• Delaware
• Michigan
• Connecticut
• Oregon
• Ohio
The construction industry represents about 3% of state GDP for all five states, which is not that far below the 3.7% for the United States as a whole. Delaware and Connecticut tend over time to be less dependent on the construction industry. Michigan and Ohio are still recovering from the effects of the Great Recession and are more dependent on manufacturing.
Looking ahead
2015 promises continued improvement for the U.S. economy and construction. With the U.S. economy still performing well below potential, there is considerable room to grow without undue inflationary pressures. The year is likely to produce significant changes for some industries and will increase the availability of workers for construction, many of whom have been employed in the energy sector.
Lower energy prices are putting money back in consumers’ pockets, which will slowly increase demand for consumer goods and services and the need to produce those goods and deliver those services resulting in demand for office space, lodging, health care facilities and more.
In addition, increases in pay and additional income for workers returning to the workforce or returning to full time from part time will cause those workers to spend more, likely resulting in an increased demand for residential construction, in addition to a slight increase in demand for rental properties.
Read more on ABC’s website.