Optimism Returns: A Construction Outlook for 2014

Public sector infrastructure segments, such as highway construction and transportation projects, are expected to remain stable in 2014. Contractors are most optimistic about demand for water and sewer construction.

Employment levels are expected to pick up, albeit modestly, as new projects develop. A big concern of firms is the ability to find enough skilled workers to fill demand. In the survey, 62 percent of firms said they are having difficulty filling key professional and craft worker positions. Two thirds of firms expect it will be harder, or remain as difficult, to fill professional positions and 74 percent said it will be harder, or remain as hard, to fill craft worker positions.

Competition for construction personnel has led to improved pay and benefits in an effort to retain qualified employees. The supply of craft workers has been blamed on poor or below average training programs for new workers.

Wage increases ranged between 2.5 percent to 8 percent (over five years) 1 percent for firms on the AGCA conference call panel. Barry Fries, owner of B.R. Fries Construction in New York City, said increased wages has led to open shop contractors taking a larger percentage of construction work in NYC. A West Coast contractor said workers have received modest increases of less than 1 percent over the past few years and the region needs to play catch up to provide responsible wages to keep employees in the industry.

Higher health care costs have become an issue for many firms with 82 percent of firms expecting to pay more for health insurance for their employees in 2014. Only one percent reported plans to reduce health coverage. In the AGCA conference call, contractors reported higher health costs goes into labor costs that are passed on to owners, which can hinder the ability to provide adequate pay increases for employees.

Pressure on pensions and higher liability costs were another concern of contractors during the conference call. Fries said insurance carries do not want to do business in NYC because of onerous libel laws that put liability on owners, making insurance carriers responsible for paying losses. He has seen 70 to 100 percent increases in liability insurance recently.

Tight credit was reported as becoming less of a problem. A year ago, 13 percent of firms reported having a hard time getting bank loans and 40 percent said projects were delayed or canceled because of tight credit conditions. In the recent survey only 9 percent of firms reported having a hard time getting bank loans and only 32 percent had projects canceled or delayed because of tight credit.

New equipment purchases and leases are on the horizon for the majority of firms surveyed. Plans for purchasing new equipment are up from 64 percent at the beginning of 2013 to 73 percent in 2014. Those who plan to lease some equipment, increased from 77 percent to 86 percent of firms.

Construction material prices are expected to increase in 2014 said 90 percent of those surveyed. The increases are expected to be in the range of 1 to 5 percent.

Contractors expect the construction market will expand this year or in 2015—36 percent expect growth in 2014 and 32 percent expect expansion in 2015. In the last three surveys, contractors put off expectations of growth for at least one more year.

Contractors also expressed dissatisfaction with Washington’s budgetary disputes and aggressive regulatory agenda. Concerns over keeping detailed records on job applicants, silica exposure regulations, and EPA wetland jurisdiction were cited by survey respondents.

Contractors also want help training skilled workers, repeal of all or part of the Affordable Care Act, renewed tax deduction and bonus depreciation for construction equipment and reform of tax codes that penalize construction businesses.

Regionally, states with interests in gas and oil development and transportation are expecting higher construction activity. Louisiana, in percentage terms, may have the biggest growth of any state in the U.S., said AGCA chief economist Ken Simonson in the conference call. For state specific and regional data, go to www.AGC.org.

“Contractors are more optimistic about 2014 than they have been in a long time,” said Stephen E. Sandherr, the association’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.”

Optimism Returns: The 2014 Construction Hiring and Business Outlook may be read in its entirety at the www.AGC.org.