2015 Will Continue Streak of Shrinking U.S. Budget Deficit

By Bill Chappell

The federal budget deficit will fall in 2015, the sixth consecutive year of decreases relative to the overall economy, according to new figures by the Congressional Budget Office. The office also says the U.S. economy will expand at a “solid pace” for the next few years.

The estimate for 2015 stands at $468 billion, a modest improvement on the 2014 budget deficit of $483 billion. Both numbers are solid improvements over the $680 billion shortfall that was recorded in 2013.

But as is often the case with economic news, the picture isn’t completely sunny. The main problem is the overall federal debt, which the nonpartisan CBO notes is already at historically high levels when measured against the U.S. economy.

From the budget agency: “CBO expects that federal debt held by the public will amount to 74 percent of GDP at the end of this fiscal year — more than twice what it was at the end of 2007 and higher than in any year since 1950. … By 2025, in CBO’s baseline projections, federal debt rises to nearly 79 percent of GDP.”

As you’ll recall, U.S. debt levels soared in the early years of the economic crisis as the government spent money to try to cope, even as revenues plummeted. In 2009, for instance, the budget deficit stood at 9.8 percent of the U.S. GDP; this year, it’s projected to be 2.6 percent.

While the next few years could be relatively smooth for the U.S. economy, the CBO says several elements will challenge the budget in the next 10 years:

“The aging of the population, the rising costs of health care, and the expansion in federal subsidies for health insurance that is now under way will substantially boost federal spending on Social Security and the government’s major health care programs relative to GDP over the next 10 years.”

©2015 National Public Radio, Inc. NPR new report titled “2015 Will Continue Streak of Shrinking U.S. Budget Deficit” by Bill Chappell was originally published on NPR.org on January 26, 2015, and used with the permission of NPR. Any unauthorized duplication is strictly prohibited. This article can be accessed online at http://tinyurl.com/lhdvhle.

ABC Predicts Continued Construction Industry Growth in 2015

Associated Builders and Contractors (ABC) forecasts a steady and ongoing economic recovery for the U.S. commercial and industrial construction industries in 2015. The reasonably brisk industry recovery in 2014 should continue in 2015, with momentum especially growing in segments closely related to the current American energy and industrial production resurgence.

“ABC forecasts nonresidential construction spending will expand by roughly 7.5% next year,” said ABC Chief Economist Anirban Basu. “The segments that will experience the largest growth in construction spending in 2015 include power (e.g., natural gas-related construction), lodging (leisure and business spending), office space (professional services employment creation), and manufacturing (rebounding industrial production).”

“The public sector will see far more sluggish growth in construction spending,” Mr. Basu warned. “However, this fits a multi-year pattern with private nonresidential spending exceeding public nonresidential spending by 28% in 2014, up from 15.6% in 2013.”

“There are always issues, of course, including compensation costs that will rise more quickly per worker next year than in years past,” Mr. Basu cautioned. “This will be particularly apparent in areas like Louisiana and Northern California, places that have experienced significant economic growth recently. Additionally, while material price inflation has been suppressed, it may accelerate in 2015. Last year, prices were suppressed due to a combination of factors, such as softer growth in most of Europe and Asia, rising energy production here in the U.S., and a stronger dollar. Some of these factors might not be as prominent next year, so the stage could be set for price increases close to 3%.”

“Taking into account current economic momentum, especially in the form of employment growth, ongoing accommodative monetary policy and increased growth in consumer spending, further stoked by falling gasoline prices, 2015 should be a decent one for the U.S. economy,” said Mr. Basu. “Contractors should continue to experience a lengthening backlog, and the industry should continue to see increases in nonresidential construction spending and employment growth.”

This release from the Associated Builders and Contractors (ABC) can be accessed online at http://tinyurl.com/mxcp56w.

Steady Construction Growth in the Forecast

By Kermit Baker

Last year finished stronger than expected for the nonresidential building construction market. While severe weather conditions in many parts of the country got construction activity off to a slow start, a strong finish pushed spending on buildings up an estimated 6% in 2014. Commercial construction spending increased by nearly 15%, and growth in industrial construction increased by almost as much. However, the institutional sector continued to disappoint, as spending declined again for the year, although it appeared to be nearing a bottom.

For the coming year, prospects look to continue to improve, with overall growth projected to increase almost 8%. Commercial and industrial activity will again pace the upturn, with both sectors projected to grow at a double-digit pace. However, institutional activity is expected to return to the positive column, with spending gains of 5%. Next year is projected to be almost a carbon copy of 2015, with overall spending gains around 8%, commercial/industrial growth again in double digits, and institutional activity improving by another 5%.

These are some of the key findings from the American Institute of Architects’ (AIA) Consensus Construction Forecast conducted in December 2014. Based on projections from some of the country’s leading nonresidential construction forecasters, the consensus is that this will be the year that the construction recovery finally reaches all of the major building sectors.

Uncertainty Clouds the Economic Outlook

The economy is strong enough at present to support additional construction activity, and lenders seem less hesitant to provide capital to the nonresidential construction sector than they did a few years ago. Gross domestic product (GDP), the broadest measure of our economy, has been growing at around the 4% rate for the past 3 quarters. This level of growth encouraged companies to hire, as there was a net increase of almost 3 million payroll positions in 2014, the largest yearly increase since before the dot-com recession last decade. This growth has pulled the national unemployment rate down to 5.6%, its lowest level since before this past recession, while pushing up consumer sentiment scores. Rising corporate profits have lifted stock prices to near record levels, which in turn have lifted business confidence scores. And, finally, rising home values had helped boost local property taxes for many local governments, making them more willing to undertake expansion programs for schools and other municipal facilities.

In spite of this impressive list of recent positive developments that should enhance the construction outlook, there is a comparable list of emerging concerns—issues that are still unfolding and that in all likelihood will influence the construction outlook over the next few years:

• Uncertainties in international economies;
• Potential labor shortages;
• Lower energy costs;
• Rising interest rates;
• Outlook for the residential sector; and
• Rising construction costs—materials and construction labor.

Uncertainties in International Economies

While the U.S. economy has outperformed expectations in recent quarters, economies in much of the rest of the world have not. One reason for this is falling oil prices, which are ultimately very helpful for oil-importing countries but in the short run are detrimental to exporters. Additionally, weak international growth has helped push up the dollar relative to other currencies, which makes U.S. products more expensive abroad, thereby reducing U.S. exports.

The International Monetary Fund recently released its World Economic Outlook update, which lowered projected international growth by 0.3 percentage points both this year and next from its outlook of just 3 months ago. Still, international economic growth is forecast at 3.5% this year and 3.7% next year, up from an estimated 3.3% in 2014. However, the United States is in the unusual position of having one of the brightest economic outlooks, while recent growth centers like Russia (projected GDP of -3.0% this year) and Brazil (a measly 0.3% growth projected for this year) are underperforming. The entire Euro Area is expected to see another disappointing year of 1.2% growth, after a gain of just 0.8% last year and a 0.5% decline in 2013.

Potential Labor Shortages

The pool of construction workers declined substantially during the downturn, as construction workers moved to other industries or simply dropped out of the labor force. As the construction industry has recovered, it has had difficulty attracting younger, more highly educated workers as well as immigrants, who traditionally account for a large share of construction workers.

Recent surveys by both the National Association of Home Builders (NAHB) and the Associated General Contractors of America (AGC) point to an emerging serious labor problem. The NAHB 2014 survey found that almost half of builders nationally reported a shortage in labor availability, matching the share of builders reporting problems in 2004 and 2005 at the peak of the last cycle’s home building boom. The 2014 AGC survey found that 83% of construction firms were having difficulty filling on-site craft worker positions, such as carpenters, equipment operators, and laborers, while 61% were having difficulty filling professional positions, such as project supervisors, estimators, and engineers.

Lower Energy Prices

The recent sharp drop in oil prices will help some economies and some industries, while hurting others. Large oil exporters such as Russia and Saudi Arabia will see significant declines in revenue, while major importers such as China and the United States will see a boost through lower energy costs. Within the U.S. economy, industries and local economies dependent on oil production will suffer, while energy-intensive manufacturers and virtually all consumers will benefit from lower energy costs.

Within the construction sector, building materials with a large energy component (e.g., concrete) will benefit from lower costs—as will products and materials that are transported long distances—due to lower transportation costs. Construction projects related to oil extraction, one of the fastest-growing nonresidential construction categories in recent years, will slow as lower energy costs limit the economic viability of many projects.

Rising Interest Rates

With the Federal Reserve having ceased its purchases of long-term bonds and securities for this cycle, and sending signals that it will begin raising short-term rates later this year, higher interest rates in the near future are almost a certainty. Higher interest rates mean higher borrowing costs, which would—absent stronger growth in the economy—no doubt slow the construction recovery.

However, interest rate increases look to be moderate in the near term. Long-term rates have headed back down recently in spite of the Fed’s actions, as nervous investors look to less risky alternatives to the volatile stock market. Lower energy costs will continue to moderate inflation throughout our economy, giving the Fed more discretion in dealing with the timing of raising short-term rates.

Outlook for the Residential Sector

In addition to being an important construction sector, the residential market generally provides important insights as to the future path of nonresidential building activity. Home building, fortunately, is in the midst of a healthy recovery. Housing starts nationally exceeded a million units in 2014, the first time they have been at this level since 2007.

Rising Construction Materials Costs

With a recovering construction market comes the risk of volatility in construction material prices. Recently, the Bureau of Labor Statistics has reported jumps in prices for aluminum (up 11% over the past year), cement (6%), and gypsum products (5%). A national construction cost index developed by Rider Levett Bucknall reports that construction costs increased 5.2% for the year ending October 2014, up from 3.6% for the year ending in October 2013 and 1.7% for the year ending in October 2012.

Optimism Prevails for the Construction Outlook

On balance, the construction outlook is buffeting between positive industry fundamentals like a healthy economy, strong job growth, and healthy levels of consumer and business confidence, and the cautionary conditions discussed above. However, with relatively strong year-end results in 2014, the AIA Consensus Forecast Panel seems to be leaning toward optimism.

Additionally, design activity at architecture firms should continue to remain strong in the coming quarters. The AIA has been collecting information on new design projects coming into architecture firms, and most months in 2014 saw healthy growth. This is also reflected in the growing backlogs at architecture firms—the length of time for which current project activity would keep the staff at a firm fully employed—which averaged 5.3 months on average in 2014, up from 4.9 months in 2013 and 4.5 months in 2012.

Kermit Baker, Hon. AIA, is the AIA’s Chief Economist and part of the AIA Economics and Market Research Group, which provides AIA members with insights and analysis of the economic factors that shape the business of architecture. Article excerpts reprinted with permission from AIA’s magazine, AIArchitect, February 6, 2015 issue. This article and AIArchitect can be accessed online at http://tinyurl.com/l789dq2.

Engineering and Architecture

By R. Huntley Davis and Steven J. Isaacs

Fear of Flying

It feels like the economy has finally turned around: Engineering and architecture firms appear to be loaded with work. However, some firms are reluctant to hire quickly to fill the growing gap between the need for manpower and talent and actual staff levels. Many leaders have just experienced the most difficult period in their careers. Too many executives had to lay off vast numbers of employees to help firms stay afloat. This was a harrowing experience, and most of these senior executives never want to face this situation again. They have become reluctant to hire quickly, leaving the current staff handling an excess of work.

Recruiting Versus Retention in the War for Talent

Some firms anticipated the seriousness of the war for talent and established strong recruiting programs. Some of these focus on acquiring experienced staff from competitors, putting pressure on firms to develop robust retention programs to protect current staff. With the pipeline of future college graduates likely insufficient for the entire industry, architects and engineers must find ways to improve the firm’s effectiveness for the long term or face an erosion of capacity over time.

Project Confidence

With an improved backlog, the environment seems much better for engineers and architects, yet there continues to be a lingering concern regarding projects. The industry has experienced a great number of projects that slowed and stopped for a myriad of reasons (financing, regulatory issues, lack of confidence by owners), sometimes more than once on the same project. The normal backlog projections that traditionally showed little concern about projects in progress have mutated into a constant feeling of doubt about work in hand and skepticism about future work. Most firms have experienced the euphoria of being selected for a project that was quickly followed by the disappointment of interminable delays in the project getting underway. This new situation has made backlog and staff projection an art form, even more than it was in the past.

R. Huntley Davis is a Managing Director with FMI Capital Advisors, Inc., FMI Corporation’s registered Investment Banking subsidiary. He can be reached via email at hdavis@fminet.com.
Steven J. Isaacs is the Division Manager for architecture and engineering services with FMI Corporation. He can be reached via email at sisaacs@fminet.com.

Why 2015 Is the Time for Distributors to Spend

By James DaSilva

Many people and companies remain pessimistic about the economy and how they are doing, particularly those who look to the bubble of 2004 and 2005 as a baseline or who have houses that have failed to recover their value from before the recession.

Those people are wrong, at least in terms of the state of the U.S. economy, said Alan Beaulieu of ITR Economics at a recent conference in Washington, D.C.

“These are the good times,” he said. As he argued, 2014 was a good year—just as his company predicted. The U.S. economy, despite reports to the contrary, remains the world’s largest and is growing in terms of GDP and industrial production. Employment is up, as are most leading indicators, and no one in D.C. is looking to impose austerity. 2015 will be a good year, if softer for many in terms of growth. “We’re not an old, dying nation,” he said.

For businesses, and specifically the wholesaler-distributor industry, 2015 is a time to:

• Be ruthlessly efficient.
• Pursue BHAGs, or big, hairy, audacious goals. Be aggressive in 2015 ahead of 2016.
• Enjoy this moment of low energy prices, but do not assume they will last.
• Pay for people and process in 2015, but do not rush to add to headcount.
• React to the shortage of skilled labor. Trucking is one such example that affects distributors. That shortage means pay will rise for many companies, squeezing margins and bringing price pressures, particularly in 2016 and 2017.
• Spend on training, and look to external partnerships for talent development (community colleges, even high schools).

The world is not without economic worries, Mr. Beaulieu said, but many of the problems that get media attention will not affect the broader economic picture, especially in the short-term, and especially for distributors. Such high-profile issues with minimal U.S. economic impact include the fiscal crisis in Greece, strife in Ukraine and Syria, and the result of November’s midterm elections. Even most acts of terrorism, Mr. Beaulieu said, will not have significant economic effects, notwithstanding the other types of effects terror has.

What economic conditions should distributors be watching for in 2015? According to Mr. Beaulieu, these include:

• Housing starts
• U.S. and ITR leading indicators
• Purchasing Managers Index
• Retail sales
• Employment
• Non-defense capital goods new orders

In the long term, the United States also has fiscal worries driven by factors such as an aging population and infrastructure in need of repair. For Mr. Beaulieu, however, those factors will most severely effect economic forecasts many years out—not this year or even in the 3-year forecast.

An aging population means rising health-care, Medicaid, and Social Security costs, and a spike in the U.S. deficit. The need to refurbish American infrastructure faces funding challenges, but failure to do so would mean sacrificing part of America’s competitive advantage, Mr. Beaulieu said.

All those concerns remain far ahead. For now, he urged distribution leaders in the room, use 2015 to solidify their businesses and prepare for growth in 2015, 2016, and 2017.

Reprinted with permission from SmartBlog on Finance. James daSilva is a Senior Editor at SmartBrief and manages SmartBlog on Leadership. He edits SmartBrief’s newsletters on leadership and entrepreneurship, among others. You can find him on Twitter discussing leadership and management issues @SBLeaders. The original content can be accessed online at http://tinyurl.com/pwd44hn.

The Labor Shortage: Impacts Across the Industry

By Michael D. Clancy, R. Huntley Davis, Scott C. Duncan, Steven J. Isaacs, Scott L. Kimpland, Brian A. Moore, and Randal G. Stutzman

For years industry experts have predicted a workforce shortage spanning the design and construction industry, from engineers to skilled labor to firm leadership. Some have argued that there is no such deficiency, particularly in STEM-related disciplines, but in 2014 the real shortfall of qualified talent became apparent. It will be a major trend in 2015 and for several years as the marketplace seeks viable solutions.

Availability of Labor at All Levels Is a Major Concern

The shortage of skilled labor at all levels is no surprise. The construction industry first recognized the declining supply of construction labor as early as the mid-1980s. Organizations, including the Associated Builders and Contractors, Construction Industry Institute, Business Roundtable, Construction Users Roundtable, and others, began warning the industry of the inevitable shortage of not only skilled craftsmen but also project managers, estimators, superintendents, and senior managers. Now that the industrial segment is expanding, the issue has become critical. A 2012 report from FMI stated that 2 million jobs disappeared from the design and construction industry during the downturn that followed the Great Recession. This accounted for about 20% of all jobs lost during that period. There have been many reasons for this reduction:

During the recession, many in the industry found careers in other sectors and have no desire to come back to the construction field. As younger workers encountered the cyclical nature of the industry for the first time during this recession, many opted to seek employment in other industries less impacted by economic cycles.

Baby boomers are retiring at an astounding rate. Approximately 10,000 baby boomers are retiring each day and members of this group heavily populate most industrial, engineering and construction firms. Boomers represent 26% of the U.S. population. While the loss in numbers of workers within this group is significant, the loss of experience, knowledge, and leadership is more alarming.

Fewer young workers are entering the industry, both in the field and in management. The United States has fewer construction and engineering graduates than at the peak just 6 years ago, with many construction management and civil engineering programs running below maximum enrollment. Additionally, fewer young people are entering the skilled trades.

The industry, particularly at the craft level, is highly dependent on Hispanic labor. This demographic has historically deep roots in the industry, and with typical values such as a strong work ethic and pride in craftsmanship, this is not surprising. The growth of Hispanic workers is projected to be about 3 times that of all other workers. This drives the need for bilingual personnel at all levels. The current immigration policy (or some would argue, the lack of a policy) has clouded the ability to fully predict what ongoing impact Hispanic labor will have on the segment. Current proposals, and their likely effects, are all over the map. With no immigration reform proposal becoming law before the 2014 midterm elections, immigration will likely be a key campaign element of the 2016 presidential race. Contractors looking to Washington for clarity on this issue will have to wait a few more years.

Oil and Gas Construction Feeling the Strain

The petrochemical industry is experiencing rapid growth as more oil and natural gas reserves are found in the United States Getting these resources out of the ground, moving them to refineries in different areas of the country, and transporting the resulting products to end users have created an unprecedented construction boom in the midstream segment.

The strains on labor capacity in oil and gas construction markets worldwide continue to affect projected project costs, with large capital projects, particularly on the Gulf Coast, facing cost pressures as a result of rising labor prices and questionable long-term profitability projections. As demand continues to increase in the face of the liquefied natural gas (LNG) export gold rush, construction firms are faced with unprecedented pressures to retain and grow talent. To keep up with this extremely dynamic and competitive—if not unprecedented—business environment, oil and gas construction firms need to develop a robust talent pipeline to tackle the industry’s many business challenges in the coming years. In 2008, just 3.8% of the total construction workforce was engaged in direct oil and gas construction. By 2012, 6.4%— nearly double 2008’s number—of that workforce was engaged in direct oil and gas construction. According to FMI’s estimates, by 2017 nearly 10% of the total U.S. construction workforce will have moved over to this burgeoning segment of the industry.

FMI expects these strains to continue. In response, successful companies are thinking long term and building new talent pipelines, developing targeted interventions, assessing the business impact of skills shortages, and considering the options available to build competency.

Engineering and Architecture Firms Battle for Limited Talent Pool

Design firms have anticipated with great concern the impact of talent drain on the profession. Just as with construction, a plethora of experienced individuals departed the profession during the Great Recession and, having taken up other work, are unlikely to return. With new projects becoming available and those long on hold starting up again, the need for talent has returned. Many engineering and architecture firms anticipated the seriousness of this issue and have established strong programs for recruiting. With a limited pool of talent available, many of these programs focus on acquiring experienced staff from competitors.

Design firms that looked ahead to this day have already established robust engagement and retention efforts to protect current staff. Firms that remained cautious about hiring must now quickly take a defensive position and beware of losing key staff to competitors. With the pipeline of future college graduates, especially in engineering disciplines, insufficient to supply the entire industry, all firms must find ways to improve effectiveness for the long term or face an erosion of capacity over time.

Trade Contractors

With the building sector already facing significant shortages of talent, the industrial construction boom will further exacerbate severe shortages among several trades in the building markets. This trend is of even more concern when considering that the oil and gas companies are typically able to afford higher wages than other sectors. For tradesmen capable of working in either of the industrial or building sectors, the wages and opportunities being created by the oil and gas industry may be too attractive to pass up.

In addition to a significant shortage of trade and craft workers in the field, most trade contractors are finding it equally difficult to find, attract, and hire professional and management-level talent. Finding talented project managers, operations managers, and successors for aging presidents and CEOs is as challenging as finding talent in the field. As a result, the companies that implemented aggressive and ongoing internship and college recruiting programs 5 to 7 years ago are finding it considerably easier to fill midlevel and senior project management positions today. Having a system that injects new young talent into the firm every year is proving to be a more successful approach than trying to hire a qualified project manager or operations manager off the street. For many trade contractors that did not pursue a talent and leadership pipeline strategy years ago, the options for finding and hiring management succession candidates are limited.

The marketplace is resilient, and solutions will emerge over time. For the short term, responses to the worker shortage may be 2-pronged. First, as firms return to more normal work levels, they will seek new methods of increasing efficiency and productivity to better leverage existing teams; second, firms will enhance recruiting and retention efforts to keep top talent in-house and lure desirable workers to the firm.

Excerpted, with permission, from FMI’s 2015 U.S. Markets Construction Overview. The full report is available for purchase at http://tinyurl.com/mykh9hw. Michael D. Clancy is a Principal with FMI Corporation. He can be reached at mclancy@fminet.com. R. Huntley Davis is a Managing Director with FMI Capital Advisors, Inc., FMI Corporation’s registered Investment Banking subsidiary. He can be reached at hdavis@fminet.com. Scott C. Duncan is a Vice President with FMI Capital Advisors, Inc., FMI Corporation’s registered Investment Banking subsidiary. He can be reached at sduncan@fminet.com. Steven J. Isaacs is the Division Manager for architecture and engineering services with FMI Corporation. He can be reached at sisaacs@fminet.com. Scott L. Kimpland is a Director with FMI Corporation. He can be reached at skimpland@fminet.com. Brian A. Moore is a Principal with FMI Corporation. He can be reached at bmoore@fminet.com. Randal G. Stutzman is a Managing Director with FMI Capital Advisors, Inc., FMI Corporation’s registered Investment Banking subsidiary. He can be reached at email at rstutzman@fminet.com.

Ready to Hire Again: The 2015 Construction Hiring and Business Outlook

After several years of growth in demand, contractors appear confident about the immediate future, with an overwhelming majority of firms planning to expand their payrolls in 2015. Indeed, if their predictions come true, industry employment could expand in 2015 by the most in a decade. Meanwhile, most contractors predict demand will either grow or remain stable in virtually every market segment covered by this report. They are ready to purchase and lease new equipment—albeit mostly modest amounts. And, for first time since this association began conducting its annual outlook survey, a majority of contractors—60%—expect the construction market to grow again this year, while an additional 21% expect it will grow in 2016.

Although their outlook is relatively optimistic, contractors still face a number of significant challenges. Foremost among those challenges is the growing shortage of qualified workers—especially craft workers—to fill available positions. Those shortages likely have much to do with the apparent poor quality of local craft worker training programs. Contractors also continue to be squeezed by rising health-care costs and many worry about the impact a host of new federal regulatory measures could have on their operations.

Yet despite, or perhaps because of, those challenges, many firms continue to innovate—embracing new technology like Building Information Modeling and practices like lean, prefab, and modular construction. And they remain hopeful that Washington officials will find a way to work together to address workforce and infrastructure funding needs, among other issues.

In other words, the outlook is positive and the industry is ready to hire again.

Private Sector Demand Will Drive Growth in 2015

Growing demand for private-sector construction should drive much of the growth in the construction sector in 2015. In particular, contractors are most optimistic about the growth in the retail/warehouse/lodging segment, with the difference between the optimists and pessimists—the net positive reading—a strong 33%. Contractors are similarly optimistic about growing demand for manufacturing, private office and energy construction, with net positive readings of 26, 25, and 24% respectively. Contractors gave the hospital sector a net positive reading of 20% and the power sector 17%.

Contractors, however, are significantly less optimistic about the outlook for the 2 market segments that rely almost exclusively on federal funding: marine construction and direct federal construction. More firms expect the market for marine construction to shrink, with a net negative reading of 6%. Contractors are the most pessimistic about demand for direct federal construction—a segment that includes the construction of defense facilities and federal courthouses and office buildings. Contractors have a net negative reading of 16% for the direct federal construction segment.

Labor Shortages Are Widespread, and Getting Worse

As construction firms continue to expand, they are having an increasingly difficult time finding enough skilled construction workers. Among respondents that were trying to hire workers, 87% report having a hard time filling key professional and craft worker positions. In particular, more than three-quarters (76%) of the firms that are hiring report having a hard time finding qualified craft workers to fill vacancies, while 62% say the same about professional positions such as project managers, supervisors and estimators. Worse, 81% of firms expect it will either become harder or remain as difficult to find qualified craft workers during the next 12 months. Similarly, 72% of responding firms predict it will get harder, or remain as hard, to find qualified construction professionals this year.

As the supply of qualified construction workers tightens, compensation levels appear to be rising. Fifty-one percent of firms report they have increased base pay rates to retain construction professionals and 46% 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 1-in-5 firms has done the same to retain craft workers. Despite these pay and benefits increases, many firms report they are losing workers to other construction firms and other industries.

Credit Conditions Are Better, but Still Having an Impact

As with last year, credit conditions do not appear to be as much of a concern for contractors in 2015 as they were during much of the downturn in 2009 and earlier this decade. For example, while last year 9% of firms reported having a harder time getting bank loans, only 7% report having a hard time this year. And while 32% reported customers’ projects were being delayed or cancelled because of tight credit conditions last year, that number has fallen to 24% this year. For the majority of contractors (56%), credit conditions have not changed significantly.

Many Firms Are Using Building Information Modeling, Lean Construction, and Modular Construction

The use of Building Information Modeling (BIM) technology is becoming increasingly prevalent. Forty-one percent of firms expect the amount of projects involving BIM will increase in 2015 while only 2% of firms expect its use will decrease this year. Meanwhile, a majority (60%) of firms report utilizing lean construction principles on projects and/or in their operations. And over one-third of contractors (36%) report working on modular construction/prefab projects in 2014—a clear sign that the traditional construction model continues to evolve as firms look for more efficient ways to operate.

About the Survey

AGC conducted the survey that serves as the basis for the 2015 Construction Hiring and Business Forecast during December 2014 and the first week of January 2015. Over 900 firms from the District of Columbia and every state except Delaware and West Virginia, completed the survey. (Varying numbers responded to each question.) Participating firms represent a broad cross-section of sizes. Thirty-five percent report performing $10 million or less worth of work in 2014. Twenty-three percent performed between $10 million and $30 million worth of work, 12% between $30 and $50 million, 11% between $50 and $100 million, 13% between $100 and $500 million, and 5% performed over $500 million worth of work.

This text excerpted, with permission, from AGC’s report, “Ready to Hire Again: the 2015 Construction Hiring and Business Outlook.” The full report is available online at http://tinyurl.com/lhkvvge.