Construction Industry Survey Shows Firms
Expect to Hire More than Layoff This Year
January 25, 2011
The construction industry is faced with many challenges. According to Stephen Sandherr, chief executive officer of the Associated General Contractors of America (AGC) overall construction spending is down and the construction unemployment rate has hovered at or above 20 percent through much of the past year. Also, he says many contractors are getting squeezed by increasing material costs and flat levels for what they can charge for completed construction projects.
"[These] challenges are hurting the construction industry and undermining broader economic growth," says Sandherr, who explains that for these reasons the AGC conducted a survey of its members on their hiring, purchasing and business plans. The result is the group's 2011 Construction Hiring and Business Forecast, which it released yesterday.
"There are promising and positive signs in the outlook, but the bottom line is 2011 will not be an easy year for most firms," says Sandherr. "But if current trends continue, the construction industry will be in a much better position 12 months from now than it is today."
He continues, "The good news is for the first time in years many firms say they are planning to add [more] new staff than layoff current employees, compared to last year when 55 percent of firms laid off and only 20 percent added employees."
Sandherr also pointed out that 27 percent report they plan to add staff in 2011and only 20 percent plan layoffs.
However, not all news is positive.
"While overall the outlook is not as dreary as we've seen in prior years, the industry is still pushing against some brisk headwinds," says Ken Simonson, chief economist for the AGC. "For example, more contractors expect the construction market to shrink in 2011 than expect it to grow. They are most pessimistic about the private office markets, where 56 percent expect activity to decline."
Simonson says contractors are most optimistic about the hospital and higher education market, where 32 percent expect growth.
According to Simonson, contractors' low expectations may be driven by the fact that most firms expect stimulus-funded construction activity to decline this year.
"The clear majority of the firms expect stimulus-funded work in every market segment to decline in 2011," says Simonson. "Decline in this activity is significant given that one out of every five employees was engaged in recovery act work at the firms that won contracts. In other words, despite accounting for a relatively small percentage of the overall market the stimulus actually propped up many construction jobs during the past two years."
In addition, Simonson explained that bid levels also look to remain very competitive. "According to survey results, 29 percent of firms report they plan to lower bid levels in 2011. That follows the year when 74 percent reported lowering bid levels, including 7 percent who reported lowering them to the point where they lost money performing the work," he says.
Sandherr adds, "One remarkable thing about contractors is that they are eternal optimists and even though they are struggling through difficult days, many are taking steps now to make their operations more efficient; to embrace new opportunities in green construction and to adopt new technologies and techniques."
These issues were also included in the AGC's survey at the request of Navigant, a consulting firm based in New York. Michael Feigin is the company's managing director for construction.
"What we found is that a growing numbers of firms seem to be focused on increasing efficiencies and reducing costs by implementing best-in-class technology and business practices," says Feigin, pointing out that Building Integrated Modeling is such an example. "Only 8 percent of firms say they currently use this technology, though 55 percent expect that the number will increase in 2011," says Feigin adding that 46 percent of firms also reported implementing some form of lean business practice, and demand for green construction also continues to grow with 15 percent reporting working on LEED-registered projects in 2010 and 53 percent expecting numbers to grow this year.
"I think because of tough market conditions, many firms are focused on driving down costs, even if it means spending some money and embracing changing market demands," Feigin says. "All of these things position firms to take better advantage of a resurging construction market. Firms are investing in better technology and becoming comfortable with green building techniques; looking at new ways to coordinate on complex projects and they are finding ways to make operations more cost-efficient and more sustainable." He continues, "While some changes were made out of the necessity of the economy, the impact they will have on improving the construction industry is likely to be as long-lived as it is broad-based."