by Shane Henson — January 25, 2013—The Associated General Contractors of America (AGC) and Computer Guidance Corporation have released results from a survey that indicate a generally optimistic outlook for the construction industry even as firms worry about rising costs and declining public sector demand for construction.
According to the survey and accompanying report, Tentative Signs of a Recovery: The 2013 Construction Industry Hiring and Business Outlook, significantly more construction firms are planning to add new staff than planning to cut staff, while demand for many types of private sector construction projects should increase this year.
“While the outlook for the construction industry appears to be heading in the right direction for 2013, many firms are still grappling with significant economic headwinds,” said Stephen E. Sandherr, AGC’s chief executive officer. “With luck and a lot of work, the hard-hit construction industry should be larger, healthier, more technologically savvy and more profitable by the end of 2013 than it is today.”
The co-sponsored report was based on survey results from more than 1,300 construction firms from 49 states, the District of Columbia and Puerto Rico. Contractors from every segment of the industry answered more than 30 questions about their hiring, equipment purchasing and business plans. Economists and specialists from the association and Computer Guidance analyzed those comments to craft the outlook, says the AGC.
Among the 30 states with large enough survey sample sizes, 56% of firms in Maryland plan to hire new staff this year, more than in any other state. Only 14% of firms in South Carolina plan to add staff this year, the least amount in any state. Meanwhile, 37% of firms in Michigan plan layoffs for this year, the highest percentage of any state. No firms working in Maryland reported plans to make layoffs this year, says the AGC.
Contractors appear increasingly optimistic that demand for certain private sector projects will expand this year. Firms are most optimistic about the outlook for hospital and higher education construction, Sandherr said, noting that 36% of firms predict the amount of money spent on those projects will grow in 2013 while 39% of firms expect the market will remain stable compared to last year. Contractors were also optimistic about the markets for power construction, but had lower expectations for manufacturing, private office and retail, and warehouse and lodging construction.
Meanwhile, contractors expect demand for many types of public construction will decline in 2013. For example, according to the survey, 40% of contractors report they expect demand for public buildings to shrink in 2013, while only 18% expect that market to grow. Another 37% of contractors report they expect demand for K-12 school construction to shrink while only 20% expect it to increase. And 35% of contractors expect the market for manufacturing facilities to shrink this year, while only 23% predict it will expand.
A significant—but smaller than last year—number of contractors report that customers’ projects have been delayed or cancelled because of tight credit conditions. Forty percent of responding firms report that tighter lending conditions have forced their customers to delay or cancel construction projects, according to the AGC. Only 3% of firms reported having an easier time getting credit, while 41% report no change in credit conditions.
“Unfortunately, there are almost as many causes for concern as there are signs of optimism,” said Ken Simonson, the association’s chief economist. “Demand for public buildings is set to decline, manufacturing work appears to be slackening, materials prices and healthcare costs continue to rise, and many firms are reluctant to make major investments in new equipment.”
Simonson noted that overall demand for new construction equipment is likely to remain modest in 2013. Sixty-four percent of firms plan to purchase new equipment this year, down from 70% last year, while 77% of firms plan to lease this year compared to 78% in 2012. Contractors are increasingly relying on leasing equipment to avoid having to pay for idle equipment during lags in construction activity, the economist noted. Even as they shift toward more leasing, firms’ appetite for new equipment remains modest, with two-thirds of the firms planning to buy and 73% planning to lease $250,000 or less in equipment this year.
Contractors also report being squeezed by rising costs for health insurance and construction materials. Seventy-five percent of firms reported paying more for healthcare coverage in 2012 and 77% expect to pay even more in 2013. Meanwhile, 88% of firms reported paying more for construction materials last year, while 90% expect to pay more for their supplies this year. However, contractors are increasingly optimistic about their ability to raise bid levels, the survey found. Twenty-eight percent of firms expect to increase the amount they charge for construction this year, nearly double the 15% of firms that increased prices in 2012.
