What’s got generally optimistic general contractors feeling pessimistic

NABE Los Angeles speaker—Ken Simonson, Chief Economist of the Association of General Contractors of America—says confidence is rising, but his research also points towards a looming supply-side obstacle to growth, particularly in California.

General contractors are feeling good these days. It wasn’t always like that.

The industry lost about a third of its annual revenue between 2006 and 2011, and more thantwo million fewer construction workers had jobs. When the bloodletting stopped, unemployment hit over 20 percent.

But times have changed. The industry has grown ever since, and last year didn’t disappoint.

It took 11 years, but private construction spending set an all-time new record ($950 billion) in 2017. And while the US economy grew by 2.3 percent, the construction economy grew 1.5 percentage points faster.

General contractors expect the good times are going keep on rolling this year, according to a key industry economist.

In a speech to members of NABE Los Angeles last month at the downtown L.A. branch of the Federal Reserve Bank of San Francisco, the Association of General Contractors of America’s Chief Economist, Ken Simonson, presented the results of his latest survey, conducted between November and mid-December.

“About 53 percent expect (the) dollar volume of projects they compete for in 2018 to be higher than in 2017,” AGC’s Chief Economist Ken Simonson told NABE LA. That’s up seven percentage points from the year before. Because the survey took place before the tax plan was finalized, Simonson thinks that optimism might even be understated.

The economist’s research sheds light not only on the future pipeline of American infrastructure—our apartments, schools, roads, sewers, office buildings, etc.—but also the state of our straining labor market after seven years of job growth.

California Dreaming

California is the epicenter of industry optimism, it seems.

Hey, after last year, why not feel good?

California’s construction industry has been growing faster than the rest of its economy. No metro area in the United States created more new construction jobs than California’s Inland Empire. In the year ending last November, the Riverside-San Bernardino-Ontario economy saw construction employment rise by 15,100, or 16 percent, according to AGC data. New York City was a distant second place, creating 10,900.

And now 60 percent of Golden State general contractors expect the “dollar volume of projects to be higher” this year. That’s 16 percentage points higher than the national average, according to Simonson’s AGC survey.

However, government spending, though, not private-market demand seems to account for California contractor optimism.

Fifty-seven percent of general contractors in California believe there’ll be more government spending on transportation facilities (e.g. bus stops or light-rail stations). Another 42 percent expect more to build public buildings (e.g. courthouses) and state and local highways.

Interestingly, if not outright troublingly, no category of private-market demand—not retail or private offices or apartments—evokes nearly as much optimism from California’s builders as government-funded projects.

California Worrying

California is also the epicenter of industry anxiety, too, but it’s not about demand. They expect that.

While general contractors throughout the country have grown increasingly optimistic that there’ll be more money out there to build, they’ve also grown increasingly concerned they won’t have the labor power to get the job done—or even started.

Of 16 issues that contractors complain about, no issue ranks more pressing to them than worker shortages, according to AGC’s survey, which finds 57 percent of contractors report “having a hard time filling salaried positions.”

And that survey shows that it’s a bigger problem in California where, by contrast, 71 percent of contractors now worry about being able to fill salaried positions.

Here’s why:

Construction employment in California grew 6 percent last year, according to AGC data, outpacing 43 other states. And contractors have already hired back almost all the construction workers who lost their jobs during the downturn.

At the height of California’s last construction boom, the industry employed 945,000 workers. Today, it’s employing 840,000.

The question for contractors is now: Do the 105,000 some men and women who used to work in the industry even want their jobs back?

More importantly, can the construction industry—and the broader economy it supports—grow without them?


Leave a Reply