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Local construction industry may bear out in COVID-19 fallout

Hawaii’s construction industry is used to busts, but this major sector of the local economy could help cushion the economic blow related to coronavirus in the state.

Construction has been one of the top five contributors to the state’s gross domestic product, or economic output, in recent years.

Generally, the industry is one of the most cyclical, with booms and busts off broad economic cycles. Yet there is some optimism at the moment that construction — close to a $10 billion industry in Hawaii — might stand up relatively well even as retailers, restaurants, airlines, hotels and visitor attractions cut back operations in response to the spread of COVID-19.

“I don’t see a case for shutting down construction activity as you would see in food service,” said local economist Paul Brewbaker of TZ Economics. “Knock on wood, maybe this does turn out that this is one part of the economy that is resilient.”

On Monday, as announcements poured in about business closures that included Nordstrom, Sea Life Park and Regal Theatres, Hawaiian Dredging Construction Co. carpenter R.J. Galanto helped coordinate pulling a shipping container filled with tools to erect a second tower crane off a flatbed truck as part of building a condominium high-rise named Koula at Ward Village in Kakaako.

Galanto, like some others in construction, believe their jobs are less likely to be derailed by coronavirus.

“We’re secure,” he said.

Under state Department of Labor and Industrial Relations guidelines, construction work falls in a category of lower exposure risk to COVID-19 in part because job sites don’t allow frequent close contact with the general public.

Close to 50 workers are doing foundation work on Koula in advance of vertical construction that would add another 100 to 150 or so workers to the project, which is next to a tower named ‘A‘ali‘i also rising at Ward Village.

Burton Gomes, Hawaiian Dredging general labor foreman for Koula, said he has one concern: that the supply of materials could be disrupted and in turn affect the project.

“That’s the only thing I can see that would slow us down,” he said.

Brewbaker said a recession is highly probable and reasonably expected to be severe. However, it also could be relatively short and allow a quick snap-back that doesn’t derail the construction industry where big projects have longer- term horizons.

If that’s the case, it would be a significant benefit for the local economy where construction accounted for 5.9% of state economic output in 2017 as calculated by the U.S. Bureau of Economic Analysis.

The 5.9% contribution from construction tied health care as the fourth- biggest contributor to Hawaii’s economy. The biggest contributor was real estate at 20.2%, followed by state/local government at 9.2% and retail at 6.5%. The military ranked sixth at 5.8%, followed by lodging at 5.6%.

According to a University of Hawaii Economic Research Organization report in October, construction spending statewide was projected to hold steady at between $9.6 billion and $9.7 billion annually from last year though next year after rising by $1 billion to $9.5 billion in 2018.

About 36,000 workers are in Hawaii’s construction labor force.

Local government and business leaders have proposed boosting public works construction projects to help offset negative impacts to Hawaii’s economy.

Some big ongoing government construction projects include the city’s rail system, upgrades to Honolulu Harbor and modernization of Daniel K. Inouye International Airport.

In the private sector, ongoing projects include several hotel or timeshare towers, resort renovation work, retail property upgrades and at least seven residential high-rises on Oahu: Azure Ala Moana, The Central Ala Moana, Sky Ala Moana, Ko‘ula, ‘A‘ali‘i, Kulana Hale and Lilia Waikiki.

A pair of master-planned residential subdivisions, Ho‘opili on the Ewa plain and Koa Ridge between Waipio and Mililani, also are ongoing.

Not everyone is optimistic about the standing power of construction given the uncertainty about COVID-19.

Some concern exists that if a recession is long and deep enough, it could cause condo buyers to cancel enough purchases that prompt developers to stop building.

The Arlington, Va.-based trade group Associated General Contractors of America issued a construction employment report Monday that said the coronavirus is likely to have a significant impact on construction employment.

“There is no doubt the coronavirus will have a significant impact on our economy, including the construction sector,” Stephen Sandherr, the association’s CEO, said in a statement that also urged federal officials to take action that helps mitigate such impact.

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