The Middle States encompass a group of communities featuring historic manufacturing segments, a large agricultural base, key centers of distribution and shale-related energy production. The region also includes a handful of important financial centers and is home to some of America’s most prestigious health care organizations.

Given these characterizations, it may seem like the Middle States should be booming, particularly from the perspective of construction spending. After all, U.S. industrial production has been surging, demand for food is continuously growing, energy production has been on the rise, consumer spending and the Internet economy are creating demand for distribution services, banks are flush with capital and the world remains hungry for cutting-edge innovations in the life sciences. But demographics and other factors help explain why forceful economic recovery has yet to develop in a region with such promise.

By the third quarter of 2014, Associated Builders and Contractors’ Construction Backlog Indicator for the Middle States stood at 6.9 months, well below the national average of 8.8 months. Two-thirds of the Middle States are among the states registering the slowest job growth rate last year, including Minnesota and Ohio (1.2 percent, ranked 34th); Iowa and Michigan (1.1 percent, ranked 37th); Illinois (0.9 percent, ranked 40th); Kansas (ranked 40th); Nebraska (ranked 43rd); and South Dakota (ranked 43rd). Only two of the 12 Middle States ranked among the top third of U.S. states in terms of job growth between December 2013 and December 2014: North Dakota (first) and Indiana (17th).   

In terms of absolute numbers of construction positions added, the Middle States tended to rank higher last year, in part due to large public projects and significant numbers of apartment units being added in metropolitan areas. Illinois led the way, adding 20,200 construction jobs last year, ranking fourth nationally. Wisconsin added 12,400 construction jobs last year, ranking seventh. North Dakota ranked 13th by adding 8,300 construction jobs, and Michigan ranked 14th by adding 7,200 construction positions. However, Minnesota ranked 40th, Nebraska ranked 46th and Ohio ranked 47th by losing 2,500 construction jobs.

Unemployment statistics are more favorable. The three states recording the lowest rates of unemployment in December 2014—North Dakota (2.8 percent), Nebraska (3.3 percent) and South Dakota (3.3 percent)—are all Middle States. However, each of these states is associated with smaller populations, and the impact of these lower rates of unemployment fails to countervail the impact of higher unemployment in larger states such as Indiana (5.8 percent), Illinois (6.2 percent) and Michigan (6.3 percent).

Moreover, the prevalence of lower rates of unemployment can be misleading. Essentially, there are two ways to drive down unemployment: adding a significant number of jobs, which reduces the number of jobless people actively look for work, and experiencing slow population and labor force growth.

For the most part, the Middle States are associated with soft population expansion. Between April 1, 2010, and July 1, 2014, the U.S. Census Bureau reports the nation added 10.1 million people, which translates into 3.3 percent population growth in four and a quarter years. Only 818,100 of that net population growth was registered among the 12 Middle States—about 8.1 percent of the national total. This translates into 1.2 percent population growth during this period, which means the rate of population growth in the Middle States has been roughly one-third of what it has been nationally.   

Nonresidential Construction Set to Accelerate in Many Key Submarkets

It has been a grinding, but persistent, recovery for most Middle States communities, setting the stage for expanding construction spending going forward. For instance, according to CBRE, Milwaukee’s industrial submarket experienced 16 consecutive quarters of declining vacancy through the final quarter of 2014 and is now at historic lows. Vacancy also has declined in smaller Wisconsin markets such as Kenosha and Racine.

According to CBRE, the Columbus office market has net absorbed nearly 700,000 square feet during the past year, with the metropolitan area office vacancy rate slipping by 120 basis points. The Detroit office market has experienced seven consecutive quarters of positive net absorption greater than 300,000 square feet. Positive net absorption in 2014 totaled an impressive 1.5 million square feet.

In Kansas City, office vacancy has fallen for seven consecutive quarters, slipping 3.1 percentage points between the first quarter of 2013 and the final quarter of 2014. In that same metropolitan area, nearly 3.5 million square of industrial space was net absorbed. Positive momentum is also apparent in Chicago, Cincinnati, Cleveland, Omaha, Neb., and elsewhere. Steadily, vacancy rates are falling to levels that trigger new construction.

Oddly enough, the market with the cloudiest outlook is the one that has enjoyed the fastest recovery in recent years: North Dakota. With oil prices having fallen dramatically since the summer of 2014, conventional wisdom suggests the state’s economy will begin to stagnate. Thus far, however, there has been little evidence of slumping investment in oil production and distribution segments.

Anirban Basu is chief economist of Associated Builders and Contractors. For more information, visit www.abc.org.