Weighing the Good and the Bad for Contractors in 2014

Published: Feb 10, 2014
USACE HQ / Flickr / CC BY

Last month a report by the Associated General Contractors of America (AGC) revealed some interesting statistics about the state of the construction industry. Even though construction employment is still not back to pre-recession levels, the report has some very good news about the upcoming year and is titled to reflect that fact, Optimism Returns: The 2014 Construction Hiring and Business Outlook. At the same time, the Great Recession has had some long-standing repercussions that will continue to affect the industry in 2014. Let’s dig in and find out more.

The Good

The biggest news from AGC’s report is that optimism, indeed, has returned. Excluding marine construction, a sense of hopefulness is prevalent in pretty much every construction segment. This is especially true for segments in the private sector.

To put it in exact terms, 44% of surveyed contractors believe the Manufacturing market will experience a growth, compared to only 16% who think it will shrink.Optimism also prevails in Retail, Warehouse and Lodging, with 43% predicting growth versus 16% predicting a decrease in business. Finally, 42% of respondents expect Hospital and Higher Education segments to expand, compared to only 17% anticipating a decline in demand. These stats show a net increase of 28%, 25% and 28%, respectively, compared to last year.

As for the public sector, predominant expectations are for stabilization and that’s actually a big improvement on last year. Today, 48% of contractors expect highway construction, which is a highly debated segment, to remain stable. Figures for public building construction and K-12 school construction are similar with 45% and 47% of contractors, respectively, predicting stable demand.

USACE HQ / Flickr / CC BY

Optimism about the future of the construction industry is perhaps the most apparent in the contractors’ intention to hire new workers. 41% of companies which didn’t change their number of employees last year are now planning to hire, compared to just 2% of companies which indicated intentions to lay workers off. Net hiring will also experience a lift as 86% of contractors are planning to expand their staff, an increase of 8% since last year. Finally, even though there will be some cuts, all of the respondents indicate that these will be no larger than 15 workers.

The surge of optimism among contractors can additionally be attributed to the relaxed state of credit today. In 2013, it was difficult for 13% of contractors to obtain a bank loan. This year that number is down to 9%. At the same time, only 32% of respondents said that they had to delay or postpone any project due to credit issues, compared to 40% last year.

The Bad

The data seems to indicate wonderful prospects for contractors. But it’s not all sunshine and roses. AGC’s report also highlights some difficulties that the construction industry is about to face in the year ahead.

The biggest issue will undoubtedly be the shortage of skilled workers many companies have already reported. 62% of companies report difficulties in recruiting “key professional and craft worker positions,” particularly when it comes to “project manager or supervisor positions, equipment operators, carpenters and laborers”. Confidence that this is about to change in the next year is running especially low with nearly two thirds of respondents expecting worker shortages to either get worse or remain the same in 2014.

USACE HQ / Flickr / CC BY

A natural result of the shortage is an increased rivalry between businesses who want to hire skilled workers. 52% of surveyed companies said they lost workers due to competition. This led to 57% of them offering higher pay and more benefits to keep construction professionals on their team and 60% – to keep construction craft workers. Meanwhile, the majority of contractors expect industry competition to increase even more (47%) or remain the same (48%).

Some attribute the shortage problem to skepticism among employers about training programs for construction workers. A mere 22% of respondents believe training programs for construction professionals are above average or better. As for similar programs for construction craft workers, 48% of companies think they are “below average or poor”.

A final cause of concern for contractors is that their industry is negatively affected by legislative regulations. In particular, more than half of them believe their business is suffering because of budget cuts, “new federal regulations and/or Congress’ inability to set an annual budget”. Thankfully, these legislative changes haven’t affected construction bonding, which is still easily acquired for all construction projects.

As you can see, it’s going to be an interesting year for the construction industry, but optimism definitely prevails. As for the issues, what do you think can be done to solve them? Please share your thoughts in the comment section below.

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Victor Lance is the founder and president of Lance Surety Bond Associates, Inc. He began his career as an officer in the U.S. Marine Corps, serving two combat tours. As president of Lance Surety, he now focuses on educating and assisting small businesses throughout the country with various license and bond requirements. Victor graduated from Villanova University with a degree in Business Administration and holds a Masters in Business Administration (MBA) from the University of Michigan's Ross School of Business.