Improving conditions, optimism reported in industry reports, surveys


Things are looking better for North Carolina’s construction industry.

Recent surveys indicate that the state’s industry is recovering – with increasing optimism for the future among contractors – in line with the overall national picture.

For example, Raleigh-based FMI, a management consultant and investment banker for the engineering and construction industry, reports its Nonresidential Construction industry Index (NRCI) continues to improve. The 2014 fourth quarter report shows a slight increase from 62.5 in the third quarter to 62.8 in the fourth quarter of 2014.

“This is nearly 5.5 points ahead of fourth quarter 2013,” a FMI news release says. “A NRCI greater than 50 indicates improvement or expansion.”

“There are many good reasons for optimism by NRCI survey respondents this quarter,” FMI reported. “The top-three are: businesses are starting to build again, backlogs are expanding and future business looks good with low inflation. A close fourth is a sense of financial security with improved balance sheets.

“However, the costs of labor and materials are still on the rise, thus holding down the overall NRCI score. In addition, nearly one-fourth of the panelists expressed concern about the availability of skilled labor.”

Meanwhile, the Associated General Contractors (AGC) reported in a national survey that 80 per cent of construction firms plan to expand their payrolls in 2015 while only seven per cent expect to reduce headcounts. The survey, conducted as part of Ready to Hire Again: The 2015 Construction Industry Hiring and Business Outlook, indicates that most contractors are optimistic about the year ahead and ready to expand, but will have to cope with challenges including worker shortages and regulatory burdens.

“Contractors are extremely optimistic about the outlook for 2015,” said AGC’s chief executive officer Stephen E. Sandherr. “Indeed, if their predictions prove true, industry employment could expand this year by the most in a decade.”

Sandherr noted that the number of firms planning to add employees – 80 per cent – in 2015, is significantly higher than in 2014, when only 57 per cent of firms report they added to their total headcount. However, many firms that plan to hire this year expect to make only modest increases, with 90 per cent of the firms that expect to add employees reporting they will expand by one-quarter or less this year.

The North Carolina data shows even more optimistic numbers, reporting that 88 per cent of construction firms expect to add to their payroll and only four per cent expect to cut payroll in 2015 – the remaining eight per cent expect things to remain the same.

As well, an impressive 50 per cent of North Carolina respondents say they are having challenges in recruiting both professional and skilled workers. (You can see the North Carolina survey results here:

Growing demand for private-sector construction should drive growth in 2015, AGC officials said. Contractors are most optimistic about the retail/warehouse/lodging segment, with the difference between optimists and pessimists – the net positive reading – at 33 per cent. Contractors are also optimistic about the manufacturing, private office and energy construction segments, with net positive readings of 26, 25 and 24 per cent respectively.

Contractors are also optimistic about some public sector construction segments, especially those segments that aren’t entirely dependent on federal funding. Contractors gave the outlook for water and sewer construction a new positive of 24 per cent. They have the highway market a net positive reading of 16 per cent and higher education 15 per cent.

Contractors are less optimistic about the outlook for two market segments that rely almost exclusively on federal funding – marine construction and direct federal construction. There was a net negative reading of six per cent for marine construction and a net negative of 16 per cent for the direct federal construction segment.

Seventy-nine per cent of firms report they plan to purchase new construction equipment in 2015 and 81 per cent plan to lease new equipment. However, the scope of those investments is likely to be limited, with roughly two-thirds of firms that plan to buy or lease equipment reporting they will invest $250,000 or less.

Credit conditions appear to be less of a concern for contractors in 2015 as they were during the height of the downturn, association officials added. Only seven per cent of firms report having a hard time getting bank loans this year while only 24 per cent report customers’ projects are being delayed or cancelled because of tight credit conditions.

“Despite the overall optimism, some challenges remain for the industry,” said Ken Simonson, the association’s chief economist. “In particular, as construction firms continue to expand, they will continue to have a difficult time finding enough skilled construction workers.”

Among respondents who are trying to hire workers, nation-wide 87 per cent report having a hard time filling key professional and craft worker positions. In particular, 76 per cent of firms that are hiring report having a hard time finding qualified craft workers while 62 per cent say the same about professional positions such as project managers, supervisors and estimators.

Simonson noted that as the supply of construction workers tightens, compensation levels appear to be rising. Fifty-one per cent of firms report they have increased base pay rates to retain construction professionals and 46 per cent have done the same to retain skilled craft workers. A quarter of firms report they have improved their benefits packages to retain construction professionals and one-in-five firms has done the same to retain craft workers.

Even as firms struggle with growing worker shortages, they anticipate paying more to provide health care. Eighty-one per cent of firms report they expect the cost of providing health care insurance for their employees will increase in 2015, while only one per cent expect to pay less. Despite that, only one per cent of firms report they plan to reduce the amount of health care coverage they provide this year, Simonson noted.

Large numbers of contractors are worried about the potential impact a number of proposed new federal regulations will have on their business operations, Sandherr said. Thirty-seven per cent of respondents report they are concerned about the Environmental Protection Agency’s efforts to expand their jurisdiction over wetlands. Thirty-six per cent of contractors worry that new regulations forcing contractors to keep detailed records of all job applicants will have a negative impact. And 35 per cent are worried about the impact of proposed new silica rules.

Association officials added that survey respondents would prefer that Washington officials work on other priorities. Seventy-six per cent 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 per cent want Congress to reform the tax code and 59 per cent want Congress to repeal all or part of the Affordable Care Act.

Sandherr added that the association plans to continue efforts like the Hardhats for Highways campaign to educate members of Congress about the need for new federal infrastructure investments, including for aging roads and bridges. He added that association members and officials also will continue to push for action on the measures outlined in the association’s Workforce Development Plan and would also work to get the Obama administration to rethink its current regulatory approach.

“With a little luck and a lot of effort, we will make sure the construction industry has the support it needs to continue expanding in 2015 and beyond,” Sandherr said.

The Outlook was based on survey results from over 900 construction firms from 48 states and the District of Columbia. Varying numbers responded to each question. Contractors of every size answered over 30 questions about their hiring, equipment purchasing and business plans.


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