Contractors to Hire, Add Equipment in '14; Worker Shortage Is a Concern

Many 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 by the Associated GeneralContractors of America. The survey, conducted as part of Optimism Returns: The 2014 Construction Industry Hiring and Business Outlook, provides a generally upbeat outlook 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 association's CEO. “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.”

Sandherr noted that many firms plan to begin hiring again, while relatively few plan to start making layoffs. Forty-one percent of firms that did not change staff levels last year report they plan to start expanding payrolls in 2014, while only 2 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.

Among the 19 states with large enough survey sample sizes, 100 percent of firms that did not change staffing levels last year in Utah plan to start hiring new staff this year, more than in any other state. (Click here for state-by-state survey results.)

Contractors have a relatively positive outlook for virtually all 11 market segments covered in the Outlook, in particular for private-sector segments. For five of those segments, at least 40 percent of respondents expect the market to expand and fewer than 20 percent expect the market to decline in 2014. The difference between the optimists and pessimists – the net positive reading – is a strong 28 percent for private office, manufacturing and the combined retail/warehouse/lodging segments, and 25 percent for power and hospital/higher education construction.

Among public sector segments, contractors are more optimistic about demand for new water and sewer construction, with a net positive of 17 percent. Contractors are mildly optimistic about the market for highway construction, with a net positive of 10 percent. Respondents are almost equally divided regarding the outlook for the other four segments, ranging from net positives of 5 percent for public buildings, 4 percent for schools, 3 percent for transportation facilities other than highways, to a negative of 2 percent for marine construction.

Sandherr added that contractors’ market expectations are significantly more optimistic than they were at this time last year. At that time, more contractors expected demand for highway, other transportation, public building, retail, warehouse and lodging, K-12 schools and private officers to shrink than expected it to grow.

Many contractors also report they plan to add new construction equipment in 2014. Seventy-three percent of firms plans to purchase construction equipment and 86 percent report they plan to lease it this year. The scope of those investments is likely to be somewhat limited, however. Forty-four percent of firms say they will invest $250,000 or less in equipment purchases and 53 percent say they will invest that amount or less for new equipment leases.

One reason firms may be more optimistic, association 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.”

Ninety percent of construction firms report they expect prices for key construction materials to increase in 2014. Most, however, expect those increases will be relatively modest, with 43 percent reporting they expect the increases to range between 1 and 5 percent. Meanwhile, 82 percent of firms report they expect the cost of providing health care insurance for their employees will increase in 2014. Despite that, only 1 percent of firms report they plan to reduce the amount of health care coverage they provide.

Simonson noted that as firms continue to slowly expand their payrolls, they were likely to have a harder time finding enough skilled construction workers. Already, 62 percent of responding firms report having a difficult time filling key professional and craft worker positions. And two-thirds of firms expect it will either become harder or remain as difficult to fill professional positions and 74 percent say it will get harder, or remain as hard, to fill craft worker positions.

Those worker shortages are already having an impact, the economist added. Fifty-two percent of firms report they are losing construction professionals to other firms or industries and 55 percent report they are losing craft workers. As a result, a majority of firms report they have improved pay and benefits to help retain qualified staff. One reason they are likely worried is that nearly half of the firms believe training programs for new craft workers are poor or below average.

Adding to their challenges, 51 percent of contractors report that demand for their services is being negatively impacted by federal funding cuts, new federal regulations and/or Washington’s inability to set an annual budget. “It would appear that Washington is not here to help as far as contractors are concerned,” Simonson noted.

Association officials added that survey respondents would prefer that Washington officials work on other priorities. Seventy-seven percent of firms reported listed having Washington find ways to make it easier to prepare the next generation of skilled workers as a top priority. Sixty-three percent listed repealing all or part of the Affordable Care Act as a top priority. And 63 listed renewing tax deductions and bonus depreciation for construction equipment as a top priority.