Construction firms plan to hire this year but worry about worker shortages

Many firms plan to add hires this year, and many Virginia contractors expect increased demand in many markets,  according to a survey by the Arlington-based Associated General Contractors of America (AGC).  

The results of the annual survey, released Tuesday, provide 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,” Stephen E. Sandherr, the association’s chief executive officer, said in a statement.   “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 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 two percent plan to start making layoffs. However, net hiring is likely to be modest, with 86 percent of firms reporting they plan to hire 25 or fewer new employees this year. In Virginia, the figure was five or fewer employees.

Contractors have a relatively positive outlook for virtually all 11 market segments covered in the Outlook, in particular for private-sector segments. Among public sector segments, contractors are more optimistic about demand for new water and sewer construction. They are mildly optimistic about highway construction, and respondents were almost equally divided regarding the outlook for the other four segments:  public buildings, schools, transportation facilities other than highways, and marine construction.

In Virgina, the highest expectations for increased work are in water and sewer projects and hospital and higher education facilities. 

Many contractors also plan to add new construction equipment in 2014. Seventy-three percent of firms plan to purchase construction equipment. The scope of those investments is likely to be somewhat limited, however, with 44 percent of firms saying they will invest $250,000 or less in equipment purchases, and 53 percent saying 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 expect modest increases, with 43 percent reporting increases to range between 1 and 5 percent.

Meanwhile, 82 percent of firms say they expect the cost of providing health-care insurance for their employees will increase in 2014. Despite that, only 1 percent of firms said they plan to reduce the amount of health-care coverage they provide.

As firms continue to slowly expand 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.

Adding to their challenges, 51 percent of contractors report that demand for their services is being negatively impacted by federal funding cuts and new federal regulations.

Association officials added that survey respondents would prefer that Washington officials work on other priorities. Seventy-seven percent of firms 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 percent listed renewing tax deductions and bonus depreciation for construction equipment as a top priority.

The Optimism Returns: 2014 Construction Industry Hiring and Business Outlook were based on survey results from more than 800 construction firms from every state and the District of Columbia.  Contractors answered more than 40 questions about their hiring, equipment purchasing and business plans.

AGC, a trade association for the construction industry, represents nearly 30,000 firms, including 7,000 of the country’s general contractors and more than 10,000 specialty-contracting firms.