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Thin Workforce Overshadows Optimism

Thursday, September 4, 2014

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Construction employment has expanded in two-thirds of U.S. metro areas, and spending is at a five-year high—a boom that may be squandered if the industry cannot fill its ranks, a leading contractor group says.

Every major category of construction spending increased in July, reaching $981 billion at a seasonally adjusted annual rate—an 8.2 percent increase over July 2013 and 1.8 percent above June 2014, the Associated General Contractors of America reported Tuesday (Sept. 2).

Meanwhile, industry employment expanded in 223 metro areas, declined in 72, and was stagnant in 44 between July 2013 and July 2014, according to an AGC analysis of federal employment data.

However, a majority of firms continue to report difficulty finding experienced workers, forcing some to turn down work.

Associated General Contractors of America

Construction spending is increasing and employment is expanding, but a shortage of skilled workers has contractors either turning down jobs or paying more for laborer, according to AGC. 

Established in 1918, AGC represents nearly 30,000 general contractors, specialty contractors and service providers and suppliers.

'Encouraging' Recovery

"It is encouraging to see signs of a broad-based recovery in private construction along with a recovery—at least for now—in public construction investment," said Ken Simonson, the association's chief economist.

Despite some growth in public construction spending (up 3 percent from June and 2.1 percent from July 2013), the first seven months of 2014 combined still fell 0.1 percent short of spending totals for the same period in 2013.

"The dominant public segments—highway and educational construction—also did well in July, though their performance has been mixed year-to-date," Simonson noted.

Private nonresidential spending increased by 14 percent year over year and by 2.1 percent from June; private residential spending grew 8 percent from July 2013 and 0.7 percent from June.

"Private nonresidential construction should remain strong through the rest of 2014 and beyond, while residential spending is likely to keep growing, though at a more moderate pace," Simonson said.

Infrastructure Outlook

However, Simonson added, "Funding is still inadequate for needed public infrastructure improvements.". 

The largest private nonresidential category is power construction, which includes oil and gas fields, pipelines, and electric power, AGC said. This segment outpaced prior-year numbers by 29 percent and rose 7.5 percent over June.

Manufacturing construction also did well, gaining 25 percent over July 2013 and 4.4 percent over June.

Gains in other construction sectors (listed as percentage over July 2013/percentage over June) included:

  • Highways and streets, 3 percent/6.9 percent;
  • Public education, 0.6 percent/1.6 percent;
  • Single-family homes, 9.4 percent/0.5 percent; and
  • Multifamily, 41 percent/0.2 percent.

Labor Shortages

AGC has been warning the industry about a shortage in skilled workers since at least July 2013, and its latest report sings the same tune. As construction employment expands in many parts of the country, many firms are having a hard time finding enough qualified workers, AGC said.

"Many construction firms looking to expand their payrolls are finding a surprisingly tight labor market," said Ken Simonson, the association's chief economist.

"These expanding labor shortages threaten to impact construction schedules as firms struggle to find enough qualified workers."

construction labor shortage

"Those shortages are having an impact on construction activity, with 25 percent of firms reporting they turned down work during the past year because of a lack of labor," AGC noted.

In fact, two-thirds of firms reported having experienced labor shortages during the last year, according to a survey done in partnership with SmartBrief.

"Those shortages are having an impact on construction activity, with 25 percent of firms reporting they turned down work during the past year because of a lack of labor," AGC noted.

The shortages were more widespread in the South and Midwest than in the Northeast or West, according to the survey.

The survey was distributed in an early June AGC SmartBrief newsletter. More than 500 surveys were completed, with 48 percent identified as general contractors and 28 percent as subcontractors. The full report is available to subscribers of the AGC SmartBrief newsletter and can also be downloaded here.

Willing to Pay

In turn, the worker shortage is impacting construction salaries, with 70 percent of firms reportedly paying more for skilled labor than they did last year. The wage increase was described as "significant" by 13 percent of respondents.

However, more than 80 percent said they would pay even higher wages to attract the workers they need.

What are the most difficult jobs to fill? Project managers, equipment operators, supervisors and carpenters, according to respondents. Additionally, firms said qualified laborers, estimators, electricians, plumbers and ironworkers are hard to find.

"As demand continues to pick up around the country, the construction industry is likely to face even more severe worker shortages than those identified in this survey," the report concluded.

Where the Jobs Are (And Aren't)

The largest number of construction jobs were added in:

  • Dallas-Plano-Irving, TX (9,400 jobs, 8 percent);
  • Houston-Sugar Land-Baytown, TX (8,900 jobs, 5 percent); and
  • Philadelphia, PA (8,500 jobs, 12 percent).

Percentage-wise, the biggest job gains were seen in:

  • Lake Charles, LA (27 percent, 2,900 jobs);
  • Crestview-Fort Walton Beach-Destin, FL (26 percent, 1,000 jobs); and
  • Monroe, MI (23 percent, 500 jobs).
construction spending
©iStock / tenenit

AGC says the survey results "underscore the need for action" on measures the association previously outlined in a workforce development plan.

Tallying the largest number of job losses were:

  • Phoenix-Mesa-Glendale, AZ (-4,800 jobs, -5 percent);
  • Bethesda-Rockville-Frederick, MD (-3,500 jobs, -10 percent); and
  • Newark-Union, NJ (-2,500 jobs, -7 percent).

The largest job declines by percent were seen in:

  • Stuebenville-Weirton, OH-WV (-22 percent, -400 jobs);
  • Vineland-Millville-Bridgeton, NJ (-16 percent, -400 jobs); and
  • Cheyenne, WY (-12 percent, -500 jobs).

Construction employment figures can be viewed by state here or by percent change here.

In a SmartBrief blog, author Jennifer Hicks noted that throughout the recession, the construction sector lost two million jobs.

"But times change, and after the massive battering, the industry is starting to bounce back," Hicks wrote. "Construction spending is up, projects are more plentiful and optimism is starting to sneak its way in.

"But now, there's another problem—a shortage of workers, because so many left the industry to find employment elsewhere."

Need for Action

According to AGC, the survey results "underscore the need for action" on measures the association previously outlined in a workforce development plan, "Preparing the Next Generation of Skilled Construction Workers: A Workforce Development Plan for the 21st Century."

The plan, which AGC announced in April, outlines measures that federal, state and local officials can adopt to expand training opportunities, so that more people are ready for the growing job opportunities in construction.

Nearly two-thirds of the survey respondents said they are working with, or at least plan to work with, community colleges to create and enhance apprentice programs to try to get more young people into the field.

AGC said it shared the plan with elected federal officials and reached out to Vice President Joe Biden's office to help his review of federal training programs.


Tagged categories: Associated General Contractors (AGC); Construction; Contractors; Economy; North America; Program/Project Management; Subcontractors

Comment from Tom Schwerdt, (9/4/2014, 9:02 AM)

BLS says that construction still has a 7.5% unemployment rate. If they can't find workers, they're not trying hard enough and/or not offering enough compensation. Only Leisure/Hospitality has a higher unemployment rate.

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