ECONOMICS: AGC: Contractors plan to start hiring again this year

Contractors are mildly optimistic about the market for highway construction

News AGC January 21, 2014
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Many firms plan to start hiring again, and most contractors predict demand will either grow or remain stable in virtually every market segment this year, according to survey results released by the Associated General Contractors of America (AGC). The survey, conducted as part of “Optimism Returns: The 2014 Construction Industry Hiring and Business Outlook,” provides 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,” said Stephen E. Sandherr, AGC's chief executive officer. “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 to start making 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 2% plan to start making layoffs. However, net hiring is likely to be relatively modest, with 86% of firms reporting they plan to hire 25 or fewer new employees this year.


Among the 19 states with large enough survey sample sizes, 100% of firms that did not change staffing levels last year in Utah plan to start hiring new staff this year, more than in any other state.


Contractors have a relatively positive outlook for virtually all 11 market segments covered in the report, in particular for private-sector segments. For five of those segments, at least 40% of respondents expect the market to expand and fewer than 20% expect the market to decline in 2014. The difference between the optimists and pessimists—the net positive reading—is a strong 28% for private office, manufacturing and the combined retail/warehouse/lodging segments, and 25% for power and hospital/higher education construction.


Among public-sector segments, contractors are more optimistic about demand for new water and sewer construction, with a net positive of 17%. Contractors are mildly optimistic about the market for highway construction, with a net positive of 10%. Respondents are almost equally divided regarding the outlook for the other four segments, ranging from net positives of 5% for public buildings, 4% for schools, 3% for transportation facilities other than highways, to a negative of 2% for marine construction.


Sandherr added that contractors’ market expectations are significantly more optimistic than they were at this time last year. At that time, more contractors expected demand for highway, other transportation, public building, retail, warehouse and lodging, K-12 schools and private officers to shrink than expected it to grow.


Many contractors also report they plan to add new construction equipment in 2014. Seventy-three percent of firms plans to purchase construction equipment and 86% report they plan to lease it this year. The scope of those investments is likely to be somewhat limited, however. Forty-four percent of firms say they will invest $250,000 or less in equipment purchases and 53% say 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% of firms report having a harder time getting bank loans, down from 13% in last year’s survey. And only 32% report customers’ projects were delayed or canceled because of tight credit conditions, compared with 40% 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, AGC'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.”


The report was based on survey results from more than 800 construction companies from every state and the District of Columbia. Varying numbers responded to each question. Contractors of every size answered more than 40 questions about their hiring, equipment purchasing and business plans.

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