Date: January 20, 2010
Construction Firms Predict Drop in Private-Sector Work, Fewer Equipment Purchases Amid Widespread Uncertainty About 2010 Hiring & Lay Off Plans
Nearly nine-in-ten contractors say there will be no recovery in 2010 as part of a new national construction hiring and business outlook forecast released today by the Associated General Contractors of America. As a result, fewer contractors plan to purchase construction equipment and after a year of near-record industry layoffs, many doubt they'll be able to hire new staff this year.
"Unfortunately for the industry and for our economy this year's construction outlook is far from positive," said Stephen E. Sandherr, the association's chief executive officer. "As long as the construction industry remains mired in its own depression, broader economic and employment growth will continue to lag."
The outlook, which is based in part on survey responses from nearly 700 construction firms submitted in late December and earlier this month, shows that privately-funded construction activity is likely to decline even further this year. Indeed, 64 percent of responding contractors expect demand for new manufacturing facilities will decline, while 71 percent expect demand for new retail, warehouse and lodging facilities will drop.
As a result, the number of firms expecting to buy new equipment is down to 46 percent this year from 61 percent in 2009. Meanwhile, 81 percent of firms report already having to cut profit margins in their bids just to stay competitive and another ten percent say they are now submitting bids so low they will actually lose money on the projects.
Sandherr added that many construction firms are uncertain that they'll be able to add staff following a year of record layoffs. In 2009, 73 percent of firms said they laid off employees, averaging 39 layoffs per firm. For 2010, however, 60 percent of firms say they are unsure whether they will be able to add new staff, or be forced to make further cuts. "Perhaps they can't imagine who else to let go," Sandherr noted.
One of the relatively few bright spots for the industry was the federal stimulus. Thirty-one percent of contractors say they were awarded stimulus funded projects. Of these, 46 percent say the stimulus helped them retain an average of 24 employees each. Another 15 percent say the stimulus helped them to add an average of 10 new employees per company while 12 percent cite the stimulus as driving new equipment purchases.
Sandherr added that the stimulus is driving up expectations for publicly-funded construction activity in 2010. He noted that 62 percent of contractors expect the highway market to improve or remain stable, 61 percent say water and sewer construction will improve or remain stable. And 55 percent say work on public buildings will improve or remain stable in 2010.
"The stimulus is finally beginning to have a measurable, but limited, impact on the construction industry,"" Sandherr noted. "The full impact of those investments has sadly been tempered by the inability of Congress to put a host of multi-year infrastructure funding plans in place."
In addition to stimulus-funded projects, contractors also are relatively upbeat about prospects for power and hospital/higher education construction. Fifty-two percent expect demand for power facilities to be at or above last year's levels while 57 percent of contractors expect growth or stability in demand for hospital and higher education construction.
Overall, however, the outlook points to another difficult year for contractors Sandherr said. The only truly good news, he added, is that construction costs remain at multi-year lows, providing good deals for anyone willing to begin a construction project.
Citing examples like a DC-area county that is increasing its capital budget in light of the "limited time sale," Sandherr said the association was contacting Congressional and Administration leaders to urge them to invest in new construction activity. "If they act now, they can save taxpayers millions on construction costs while immediately boosting employment and economic activity," Sandherr said.