The Wall Street Journal (WSJ) is reporting that highway construction companies around the country, having completed the mostly small projects paid for by the federal economic-stimulus package, are starting to see their business run aground, an ominous sign for the nation’s weak employment picture.

Since the recession began in 2007, employment in the construction industry has fallen by 1.6 million, the Labor Department says. Though the housing sector accounts for many of those job losses, road builders have also suffered, and executives in the industry expect layoffs to rise next year.

More broadly, the Congressional Budget Office this week said it estimates that the federal stimulus package sustained between 600,000 and 1.6 million jobs in the third quarter, and raised gross domestic product by 1.2 to 3.2 percentage points higher than it would have been without the program.

The construction industry’s unemployment rate, including related extraction businesses, such as gravel processing, climbed to 19.1% in October, up from 10.7% a year earlier. The transportation and material-moving sectors saw unemployment rise to 11.6% from 7.9% over the same period, according to the WSJ.

State officials and local contractors trace the industry’s woes to the recession and the collapse of the residential and commercial real-estate markets. In addition, they cite the federal government’s delayed plans to enact a transportation bill. In one version, the law would have provided $450 billion for highways and infrastructure projects over the next six years.

Congress is no longer actively considering the bill, which has been bumped aside by competing priorities such as the Obama administration’s health-care overhaul and by growing support for reducing the federal budget deficit. Some lawmakers fear that continued stimulus spending could harm the economy down the road by saddling the nation with higher debt-servicing bills.

But high unemployment could revive the transportation-spending bill’s prospects. Earlier this year the Obama administration was opposed to pushing a big highway bill, deterred in part by the prospect of raising gasoline taxes to pay for it. Faced with a 10.2% jobless rate, however, officials here are rethinking their stance. The White House has said it will hold a “jobs summit” to discuss ideas, which are likely to include shifting some spending to transportation projects.

Without an infusion of federal funding, state transportation departments say they can’t develop long-term roadway projects, which are critical to the industry. About half of states’ funding for such projects comes from the federal highway trust fund, which is funded by the gasoline tax.

The industry’s saving grace then was a booming private sector. This time around, the private sector isn’t picking up the slack.

Industry executives say that the $27 billion out of the $787 billion stimulus package that went to highway construction went mostly to relatively small “shovel ready” projects, those that didn’t require much lead time. The $27 billion—77% of which had been committed as of Nov. 13, according to the Associated General Contractors of America—has saved some jobs.

In the near term, House Democratic leaders are considering paying for some transportation projects that weren’t funded by the stimulus package. The size of the spending package hasn’t been decided, nor has the question of how it would be funded. Congress is also weighing a broader set of initiatives to spark job growth.

A recent survey by the Associated General Contractors of America found that more than 76% of contractors expect state transportation departments to put less work up for bid in 2010 than this year. And 44% said they are likely to lay off employees next year.

A Pennsylvania bridge-and-highway rehabilitation company recently said it faces more competition for the few projects out there. He said contracts worth less than $2 million are attracting a dozen competitors these days, compared with around four previously. “You end up bankrupting your company to be the low bidder.”

Source: Wall Street Journal