Seventy-one percent of construction firms plan to expand their payrolls in 2016 as contractors expect increased activity in a range of public and private market segments, according to results of an Associated General Contractors of America and Sage Construction & Real Estate survey. Conducted as part of AGC’s “The Challenges Facing a Growing Industry: The 2016 Construction Industry Hiring and Business Outlook,” the survey indicates contractors foresee a positive year despite tight labor conditions, regulatory burdens, and information technology security challenges.
Association officials note that while nearly three-quarters of survey respondents say they will increase payrolls in 2016, such hiring will only lead to modest increases in the overall size of firms. Sixty-three percent of firms report their planned hiring will increase total headcount between 1 and 25 percent; 8 percent report they will expand their headcount by more than 25 percent this year. Among the 30 states with large enough survey sample sizes, 95 percent of firms in Kansas plan to expand their payrolls in 2016, more than in any other state. Meanwhile, 25 percent of firms in Pennsylvania report they plan to reduce headcount this year, more than in any other state.
Contractors expect a mix of private and public sector market segments to drive 2016 construction demand. As measured by the net positive reading—the percentage of survey respondents who expect a market segment to expand versus the percentage who expect it to contract—respondents are most optimistic about the retail, warehouse and lodging market outlook (21 percent net positive). They are also positive about prospects for hospital (19 percent net positive), private office (19 percent), multifamily residential (14 percent), higher education (13 percent), K-12 school (12 percent), and public building (12 percent) construction. Respondents’ views on the latter two segments contrast with the general pessimism that attended 2015 public construction market segments.
Moving into 2016, contractors are less optimistic about other construction market segments, including manufacturing (7 percent net positive), other transportation (3 percent), power (1 percent) and direct federal (-1 percent). AGC stresses that the 2016 Outlook survey was completed prior to enactment of federal legislation to increase funding for highways, transit and direct federal agency spending (Fixing America’s Surface Transportation Act), and extend the expiration date for wind, solar and other tax provisions helpful to construction.
Construction firms continue to cope with shortages of available workers; 70 percent report they are having a hard time finding either salaried or craft professionals, and 69 percent predict that labor conditions will remain tight, or get worse in 2016. Firms are responding to worker shortages by increasing pay and/or benefits. Forty-nine percent of respondents report they have increased base pay rates, 30 percent report they are providing incentives and/or bonuses, and 23 percent report they have increased their contributions to employee benefits to retain or recruit workers. Nearly half of the firms report they plan to increase their investments in training and development compared to 2015.
“What is particularly striking about the findings on worker shortages is that they are consistent with the responses from last year’s Outlook,” notes AGC Chief Economist Ken Simonson. “In other words, after a year of raising pay and increasing benefits, contractors remain as worried about the lack of qualified workers as they were at the beginning of 2015.”
In addition to coping with worker shortages, contractors worry about the continued increase in health care costs. Seventy-nine percent of firms report the cost of providing healthcare for their employees increased in 2015, while another 81 percent expect such costs will increase this year. Even as firms spend more on healthcare coverage, they are prepared to increase investments in information technology. According to the Outlook, 42 percent of firms report they invested at least 1 percent of their revenue in IT last year, up from 32 percent in surveys Sage Construction conducted over the past two years.
Contractors are also becoming increasingly savvy with their IT investments. For example, 42 percent report they already have formal IT plans in place while an additional 11 percent will put such plans in place in 2016. Likewise, 59 percent of firms report they use, or plan to use, cloud-based software. Most firms are also using technology to collaborate on construction projects, with 71 percent using file-sharing sites to exchange information with owners, subcontractors and other project partners and 40 percent using more sophisticated online collaboration tools.
As technology and the threat of cybercrime becomes more prevalent, many firms report they are having to take steps to protect their IT systems. For example, 75 percent report they have an overall IT security plan and 46 percent have a security policy in place for mobile devices. “Technology is making it easier for firms to operate and succeed in today’s competitive marketplace,” explains Sage Construction, North America Vice President and General Manager Jon Witty. “We are seeing continued growth in the adoption of mobile technology and collaboration software and a continued move to the cloud, all done with an increasing focus on security.”
Beyond labor and IT challenges, contractors must also cope with new regulatory burdens. Thirty-nine percent of contractors report they are worried about the continued expansion of federal regulations while 34 percent report they are worried about the growth in state and local red tape.
“As long as local, state and federal officials are willing to act on our workforce measures, embrace a more rational approach to regulations, identify measures for controlling healthcare costs and protect e-commerce, the industry should continue to expand,” affirms AGC CEO Stephen Sandherr, referencing AGC policy proposals. “That is precisely why we will continue to focus our energies on ensuring the continued growth of this industry.”
“The Challenges Facing a Growing Industry: The 2016 Construction Industry Hiring and Business Outlook” was based on survey results from over 1,500 construction firms from all 50 states as well as the District of Columbia. Varying numbers responded to each question. Contractors of every size answered over 30 questions about their hiring, workforce, business and information technology plans.