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Contractors Gird for 2013 Challenges

Friday, January 18, 2013

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“Luck and a lot of hard work” may prove to be saving remedies for the hard-hit construction industry.

That’s the latest from the Associated General Contractors of America, which maintains that the industry is moving in the “right direction for 2013” despite rising material costs, a shrinking pool of public-sector projects, and other significant economic hardships still plaguing many companies.

construction
XF Law / Wikimedia Commons

Rising costs for building materials and health insurance continue to squeeze the construction industry, but many contractors believe they can offset the increases with higher bid levels, according to AGC's latest survey and outlook.

Still, 31 percent of construction companies plan to add workers in the coming year, according to AGC's latest construction firm survey conducted as part of Tentative Signs of a Recovery: The 2013 Construction Industry Hiring and Business Outlook.

The scope of those staff additions is likely to be modest, however; 79 percent of firms say they plan to hire 15 or fewer people in 2013, and only 13 percent plan to hire more than 25 new workers this year, AGC said.

“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 health care costs continue to rise, and many firms are reluctant to make major investments in new equipment.”

Maryland Steps Ahead

Fifty-six percent of contractors in Maryland plan to hire new staff this year—more than any other state with a large enough survey sample size, the association reported. Furthermore, no Maryland-based companies reported plans to make layoffs in 2013, the survey said.

On the other hand, just 14 percent of contractors in South Carolina plan to add staff this year—the least amount in any state. Meanwhile, 37 percent of contractors in Michigan plan layoffs for this year, the highest percentage of any state. 

Click here for AGC's state-by-state survey results.

Private vs. Public

The contractors surveyed appear "increasingly optimistic" that demand for certain private-sector projects will rise this year, said Stephen E. Sandherr, the association's CEO.

Thirty-six percent of companies predicted that more money would be spent in 2013 on hospital and higher-education construction projects, Sandherr said.

construction
AGC

Forty-percent of contractors expect demand for public buildings to shrink in 2013.

In addition, 39 percent of firms anticipate the market to remain stable, as compared to last year.

Contractors were also optimistic about the market for power construction but had lower expectations for manufacturing; private office and retail, warehouse and lodging construction, AGC said.

When it comes to public construction, however, contractors expect demand for many types of projects to decline in 2013, AGC reported. 

For example, 40 percent of contractors report they expect demand for public buildings to shrink in 2013, while only 18 percent expect that market to grow. In addition, 37 percent of contractors say they expect demand for K-12 school construction to shrink, while only 20 percent expect it to increase. 

Thirty-five percent of contractors expect the market for manufacturing facilities to shrink this year, while only 23 percent expect it to expand, the association said.

Equipment Leasing Trend Continues

Simonson noted that overall demand for new construction equipment is likely to remain modest in 2013.

Just 64 percent of contractors plan to purchase new equipment this year, down from 70 percent last year, while 77 percent of contractors plan to lease this year compared to 78 percent in 2012, the association said.

"Contractors are increasingly relying on leasing equipment to avoid having to pay for idle equipment during lags in construction activity," Simonson said.

Materials and Health-Insurance Woes

Contractors surveyed also report being "squeezed by" rising costs for construction materials and health insurance, according to the industry association.

Eighty-eight percent of contractors reported paying more for construction materials in 2012, while 90 percent expect to pay more for their supplies this year, the AGC said.

Seventy-five percent of contractors reported paying more for health-care coverage in 2012, and 77 percent expect to pay even more in 2013, the association reported.

However, contractors are "increasingly optimistic" about their ability to raise bid levels to offset these costs, AGC added. Twenty-eight percent of contractors expect to increase the amount they charge for construction this year, nearly double the 15 percent of firms that increased prices in 2012.

Technology Push

“The survey indicates that construction companies will continue to make investments in their IT infrastructure, specifically in areas such as enterprise content management, mobile-field applications and solutions that support self-service functions,” said Roger D. Kirk, CEO, Computer Guidance Corp.

Six in 10 firms plan to invest in their information technology departments in 2013, Kirk said

The construction outlook, which the AGC co-sponsored with Computer Guidance, 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.

 

   

Tagged categories: Associated General Contractors; Building materials; Contractors; Economy; General contractors; Industry surveys; Market

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