The Building Tradesman Newspaper

Friday, January 20, 2017

2017 should be a very good year, Michigan and U.S. contractors say

By The Building Tradesman

U.S. construction contractors expect private and public sector demand to grow in all market segments in 2017, and 73 percent then plan to expand their payrolls.

All in all, good news for construction workers and their employers, according to industry survey results released Jan. 10 by the Associated General Contractors and Sage Construction and Real Estate.

Despite the general optimism outlined in Expecting a Post-Election Bump: The 2017 Construction Industry Hiring and Business Outlook, many firms report they remain worried about the availability of qualified workers and rising health and regulatory costs.

"Contractors have relatively high expectations for 2017 as they predict the economy and demands for all types of construction will grow," said Stephen E. Sandherr, the AGC's CEO.  "As a result of this optimism, many firms expect to expand their headcount next year."

A total of 46 percent of respondents across the U.S. said they expect a higher dollar volume of projects in 2017 than in 2016, versus just 9 percent who expect a lower volume, for a net positive reading of 36 percent. The remaining 45 percent expect volumes to remain more or less constant. All but a handful of U.S. contractors expect the overall construction market to expand or remain roughly the same in 2017 compared to 2016.

There are also positive expectations in Michigan, where the AGC/Sage survey used a pool of 31 responses from contractors, and found that 61 percent think dollar volumes for projects for which they compete will be higher in 2017, while 33 percent expect the same workload as in 2016.

Just over a quarter of the same Michigan-based respondents say their workforce would remain the same (26 percent) in 2017, while 70 percent said their headcount would increase by 1-25 percent. Four percent said their employment should jump by more than 26 percent - while zero respondents saw a decrease in their workforce.

Are there construction worker shortages? It would appear to be the case in Michigan for both salaried and hourly professionals: 26 percent agreed that “it will become harder to find and hire qualified construction professionals.” Another 52 percent of the contractor-respondents agreed that “it will continue to be hard to find and hire qualified construction professionals” in 2017. Of the remainder, 13 percent were "unsure," and only a handful of respondents said it is easy or would be easy to hire workers.

Some other Michigan-based survey findings:

*Higher base pay (provided by 43 percent of responding contractors) and giving incentives and bonuses (provided by 35 percent) were the two top ways employers used to recruit and retain workers. Less common were improved employee benefits (17 percent) and paying more overtime (13 percent).

*Only 9 percent of contractors "are not considering increases in pay and/or benefits."

*Worker shortages are easily the greatest concern (mentioned by 59 percent) of Michigan contractors in doing business, followed by worker quality (45 percent). safety (36 percent), increased competition for projects (36 percent), external process inefficiencies, i.e. collaboration with owners, subs and vendors (36 percent), and rising subcontractor and material costs (both 32 percent).

*Compared to 2016, nearly all contractors plan on increasing their investment in training (61 percent) or keeping the same level (30 percent). The rest are unsure.

U.S. contractors had a positive outlook, on net, for all 13 market segments included in the survey. Respondents are most optimistic about the outlook for both the hospital and retail, warehouse and lodging markets (23 percent net positive for both). Respondents were also positive about the outlook for private office, manufacturing, highway and public building construction. And they are optimistic about the prospects for higher education and K-12 construction, as well as water and sewer construction.

The only market segment where contractors are less optimistic this year than they were last year is the multifamily residential sector, where there is an 11 percent net positive for the year vs. a 14 percent net positive last year. It is important to note, the AGC said, that most respondents completed this survey in the days and weeks following the elections and may have based some of their optimism on the recent growth in stock market values and the fact the president-elect has repeatedly promised to make new investments in infrastructure.

One reason many firms expect to make only slight increases to their headcounts is that they appreciate how difficult it will be to find enough qualified workers to hire. Indeed, 73 percent of firms across the U.S. report they are having a hard time finding qualified workers. And 76 percent of respondents predict that labor conditions will remain tight, or get worse, during the next 12 months.

"Contractors remain quite concerned about labor shortages, tight margins and growing costs," said Ken Simonson, the AGC's chief economist. "In particular, as additional older workers reach retirement age, firms will struggle to find qualified workers to replace them."

In addition to coping with worker shortages, contractors are also worried about the continued increase in health care and regulatory compliance costs. Eighty-four percent of firms report the cost of providing health care for their employees increased in 2016 while 82 percent expect their healthcare costs will increase in 2017. And 41 percent of firms report they are worried about the growth in federal regulations.