The Building Tradesman Newspaper

Friday, January 31, 2014

Mild, not wild optimism seen for 2014 market by construction contractors

By The Building Tradesman



Many U.S. construction firms plan to start hiring again and most contractors predict demand will either grow or remain stable in virtually every market segment this year, according to survey results released Jan. 21 by the Associated General Contractors of America.

The survey, conducted as part of Optimism Returns: The 2014 Construction Industry Hiring and Business Outlook, provides a generally upbeat forecast for the year, even as firms worry about growing worker shortages, rising costs and the impact of new regulations and federal budget cutting.

“Contractors are more optimistic about 2014 than they have been in a long time,” said Stephen E. Sandherr, the AGC’s chief executive officer. “While the industry has a long way to go before it returns to the employment and activity levels it experienced in the middle of the last decade, conditions are heading in the right direction.”

The survey asked 41 questions of more than 800 responding contractors in the U.S. It found that 41 percent of firms that did not change staff levels last year report they plan to start expanding payrolls in 2014, while only two percent plan to start making layoffs. However, net hiring is likely to be relatively modest, with 86 percent of firms reporting they plan to hire 25 or fewer new employees this year.

Michigan was one of 19 states with responding contractors that offered a sufficient sample size for the survey – and some of the state-specific answers offered fairly good news, and some food for thought. (The AGC survey did not differentiate, at least publicly, between union and nonunion contractors).

Employment: The survey looked back and found a degree of employment stability in Michigan, with 53 percent of employers adding workers or  having no change (13 percent) in 2013, compared to the 33 percent who laid off workers. And of those contractors that laid off workers, 60 percent said the numbers were five or fewer.

For 2014 in Michigan, 50 percent of contractor- respondents said they planned to add workers, while 50 percent responded “don’t know.” That moderate enthusiasm is dampened a bit as 100 percent of respondents who plan on adding workers reported the number would only be five or fewer. Zero respondents checked the box saying they planned to lay off any workers.

Worker shortages: The survey revealed that for responding contractors, at least, the shortage of skilled workers in Michigan is easily their top “current workforce challenge.” Forty seven percent of respondents reported that “I am having a hard time filling (all or some) key professional and craft worker positions.” Among the contractors who reported they are having trouble hiring key craft worker positions, 67 percent said electricians and 50 percent said pipefitter/welders were the most in demand.

The survey said 40 percent of responding contractors in Michigan said it will become more difficult to hire construction professionals in the next 12 months. A large part of the reason: construction workers are leaving to work their trade elsewhere, or are leaving the industry. Twenty three percent of respondents said workers are leaving for construction firms either locally or out of area, and another 38 percent said workers are leaving for jobs in other industries.

Salary/benefits: The concerns over a shortage of skilled workers likely won’t translate into a rush to put more money on workers’ paychecks in Michigan. Only 12 percent of contractors report having to pay workers more to retain and/or recruit them, although 18 percent said they are paying more overtime, and 29 percent said they would be paying for improved benefits. Forty two percent of respondents reported they would not be paying more to retain/recruit, or are unsure.

A few other tidbits:

*Health insurance costs increased for 87 percent of responding contractors in Michigan in 2013, and stayed the same for the remaining 13 percent. For 2014, 93 percent of contractors expect a hike in health care costs.

*Michigan construction firms are casting a wider net for projects – 67 percent expect to bid on work that’s farther away than their traditional geographical area.

*This year will be a year of growth in construction in Michigan, say 57 percent of respondents. Just over a third of the contractors say the construction market won’t start to grow until 2015.

*Legislatively, the top concerns of Michigan contractors are “preparing for the next generation of skilled construction workers (82 percent); reforming the federal tax code (73 percent), and repealing part or all of the Affordable Care Act (73 percent). Lower on the list: “fixing multi-employer pension plans (36 percent) and “stopping federally mandated project labor agreements” (27 percent).

Nationwide, one reason firms may be more optimistic, AGC officials noted, is that credit conditions appear to have improved. Only 9 percent of firms report having a harder time getting bank loans, down from 13 percent in last year’s survey. And only 32 percent report customers’ projects were delayed or canceled because of tight credit conditions, compared with 40 percent a year ago.

“While the outlook is significantly more optimistic than in years past, there are still areas of concern for most contractors,” said Ken Simonson, the association’s chief economist. “Many firms will struggle to find enough skilled workers, cope with escalating materials and health care costs, and comply with expanding regulatory burdens.”