General Contractors Dont Expect Construction
Improvements Until 2011, AGC Reports
January 20, 2010
Nearly nine-in-ten contractors say there will be no recovery in
2010 as part of a new national construction hiring and business
outlook forecast released today by the Associated General Contractors
of America (AGC).
While 2009 was a difficult year for much of the U.S. economy,
said Stephen Sandherr, AGC chief executive officer (CEO), during
a conference call this afternoon, it was simply devastating
for the construction industry.
The industry isnt expecting that trend to reverse itself
in the next year, according to a survey issued by AGC, which found
that 88 percent of construction firms dont expect overall
business conditions to improve until at least 2011. The outlook,
which is based in part on survey responses from nearly 700 construction
firms submitted in late December and earlier this month, shows that
privately-funded construction activity is likely to decline even
further this year.
They arent predicting a turn-around because few contractors
expect privately funded construction projects, which typically account
for the bulk of annual construction activity, to improve,
As a result, 81 percent of firms report already having to cut profit
margins in their bids just to stay competitive and another ten percent
say they are now submitting bids so low they will actually lose
money on the projects.
Sandherr added that many construction firms are uncertain that
they'll be able to add staff following a year of record layoffs.
In 2009, 73 percent of firms said they laid off employees, averaging
39 layoffs per firm. For 2010, however, 60 percent of firms say
they are unsure whether they will be able to add new staff, or be
forced to make further cuts. Perhaps they can't imagine who
else to let go, Sandherr noted.
Several contractors on this afternoons call expressed concern
about their subcontractors as well. Jack Parker, president and CEO
of Reed and Reed in Woolwich, Maine, noted that his company has
had to provide financial assistance to subcontractors to keep them
on the job. Thats the cost of doing business right now,
Maryanne Guido, CEO of San Antonio, Texas-based Guido Brothers
Construction, added, Were doing the same thing, just
helping subcontractors getting the money so they can make payroll
and just keep their businesses going. I think the concern here is
the margins are so low and theres so many competitors out
there that theres not any room for error.
One of the relatively few bright spots Sandherr cited for the industry
was the federal stimulus.
The approximately $135 billion in construction funds included
in last years package are now beginning to have a measurable,
but limited, impact on the construction industry, he said.
The survey found that 31 percent of contractors were awarded stimulus
funded projects. Of these, 46 percent say the stimulus helped them
retain an average of 24 employees each. Another 15 percent say the
stimulus helped them to add an average of 10 new employees per company
while 12 percent cite the stimulus as driving new equipment purchases.
As that seemed to be a sole bright spot, the speakers noted theyre
urging Congress to pass a follow-up to this bill. As Sandherr commented,
Weve lost 1.6 million jobs in the construction industry,
the unemployment rate is 22.7 percent, which is similar to what
the unemployment rate was during the Great Depression we
need a second stimulus bill.
However, he also was quick to point out, You have to remember
that 70 percent of all construction work is financed in the private
sector and so the stimulus only provides a partial relief from the
economic conditions that we have.
And yet, Sandherr noted that 55 percent of contractors say work
on public buildings will improve or remain stable in 2010.
And as the stock market, hopefully, continues to improve
in 2010, 57 percent of contractors expect institutions like hospitals
and universities, that rely on the strength of their endowments,
to invest as much, or more, in construction projects than they did
last year, he added.
Overall, the outlook points to another difficult year for contractors,
Sandherr said. He tried to offer some good news by noting that construction
costs remain at multi-year lowsproviding good deals for anyone
willing to begin a construction project.
|Source: Bureau of Labor Statistics
As new federal producer price index (ppi) figures released
today make clear, construction material costs are at multi-year
lows, which is why places like Marylands Montgomery County
are moving forward with aggressive capital plans despite tight budgets.
They know theyre getting good deals for construction now and
that if they wait, these projects will only cost more. CLICK
HERE to see the Bureau of Labor Statistics latest ppi.
AGC chief economist Kenneth Simonson wasnt quite so positive
regarding the ppi figures as, he pointed out, The ppi figures
that came out this morning show a split between what contractors
are able to collect and what theyre having to pay for materials
What this means is that the cost of materials that goes into
projects and of diesel fuel and other items the contractors consume
while doing the construction have begun to rise.
He noted that the ppi tracking the cost of finished buildingswhich
takes into account materials, consumables, labor costs, overhead
and profit, if anyhas fallen continuously over the course
of 2009. So contractors are running into more and more of
a profit squeeze as material costs begin to rise, and yet the overall
price of construction keeps dropping because more contractors are
bidding on fewer projects, Simonson said.
He added, This is not a sustainable condition and Im
quite concerned that later this year well see more contractors
dropping out of business altogether.
Just how many, most of this afternoons speakers were reluctant
Contractors are starting to take work at or below cost, which
is not a sustainable way to stay in business. Theres a tremendous
amount of downsizing, reduction of workforce and management, for
a lot of our member companies
I hate to make a guess about
how many will end up out of business at the end of this recession
but it will be a good number, I imagine in the 5- to 10-percent
range, said Doug Davidson, president of Atlanta-based New
In an effort to preclude just that, Sandherr said that the association
was contacting Congressional and administration leaders to urge
them to invest in new construction activity. If they act now,
they can save taxpayers millions on construction costs while immediately
boosting employment and economic activity, Sandherr said.
HERE to view the AGC National Forecast.
HERE to view state by state comparisons of construction hiring
and business forecasts.
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