Construction is on the Rise, but Labor Issues Cause Concern


By Chris Daues, CPA 

When you think of the economy, how do you think it is doing? Everyone, from Wall Street to your neighbor, seems to have an opinion. Specifically relating to the construction industry, here are the facts so you can form your own opinion.

National Construction Spending 

Since 2011, construction spending in the U.S. has steadily increased to approximately $1.2 trillion in 2015, which is a 9.6% increase from 2014 to 2015.

Specifically, private (portion of the economy controlled by private individuals or organizations) construction spending has increased 11.4% from 2014 into 2015, while public (portion of the economy controlled by the government) construction spending only increased 4.4%.

In a March 2016 press release from the Associated General Contractors of America (AGC), a trade association in the U.S. construction industry, construction spending for the rolling 12 months in January 2016 totaled $1.14 trillion, which is an approximate 3.0% increase from the rolling 12-month total in December 2015.

Spending on multi-family residential construction increased 2.6%, private non-residential construction increased 1.0%, and public construction increased 4.5% from December 2015 to January 2016.

National Employment

While spending has increased to an eight-year high in 2015, employment in construction-related jobs has not surpassed pre-recession (2008) levels as demonstrated by the graph below, which has caused a labor shortage in the industry.

However, unemployment rates within the construction industry have decreased to an eight-year low of 7.5% in 2015. So you may be asking yourself, how do we have an employment shortage if the unemployment rate within the industry is so low?

This is an indicator that while the majority of those individuals in the industry are working, there is still a significant number of workers that left the industry during the recession and have not yet or may not return.

State and Metro Employment

On a state-by-state basis, several states have seen double-digit increases in construction employment from January 2015 to January 2016, including Nevada (10.0%), Hawaii (16.0%) and Rhode Island (13.0%).

Additionally, other states showed strong employment increases like Colorado (5.0%), California (7.0%) and Tennessee (9.0%). There were several states, including Alaska (-9.0%), Kansas (-2.0%) and Wyoming (-5.0%), that had decreases in employment over the same time period.

From a metro level, several metro areas have seen double digit increases in employment from January 2015 to January 2016 including Sante Fe, NM (16.0%), Miami, FL (13.0%) and Las Vegas, NV (11.0%).

St. Louis, MO (5.0%), Kansas City, MO (8.0%), Nashville, TN (9.0%) and Boulder, CO (8.0%) were among other metros that also showed strong employment increases.

There were several metros, including Albuquerque, NM (-3.0%), Cheyenne, WY (-8.0%) and Tuscan, AZ (-1.0%), that had decreases in employment over that same time period.

Unemployment by Position

The AGC surveyed its members in September 2015 and received over 1,350 responses. Of the responses, 59.0% had total annual revenue of less than $50 million.

Companies were asked what their most difficult positions were to fill. For hourly employees, they responded that carpenters, sheet metal installers, concrete workers and electricians were the most difficult positions to fill. For salaried employees, project managers, estimators and engineers were the most difficult to fill.

Offsetting Workforce Shortages

The aforementioned survey summarized how companies are compensating for the worker shortage. Primarily, companies are increasing base pay and providing incentives and bonuses in response to the labor shortage.

In addition to increasing compensation, companies are also using more subcontractors and staffing agencies. While companies are discovering ways to mitigate the labor shortage issue, they face the potential risk of relying on workers unfamiliar with the proper safety procedures and policies at a higher cost.

Additionally, per the published 2015 Workforce Development Plan, the AGC is working at the federal level on several issues to revive the labor force in the construction industry.

Specifically, efforts to reform and reinvigorate the Perkins Act are being made so there is a new emphasis on increased funding and more flexibility for school officials to teach in-demand skills sets.

The plan outlines, among several initiatives, increased trade related courses being offered to high school students through the community college system and immigration reform.

Material Costs

Each month, the AGC publishes data summarizing the producer price index (PPI) for key construction related outputs. The PPI measures the average changes in prices received by domestic producers for their output.

The PPI of several key raw materials for the construction industry have increased marginally over a 12-month period from January 2015 to January 2016 including flat glass (5.9%), cement (5.6%) and gravel/crushed stone (5.7%).

However, other key components have seen significant declines including diesel fuel (-34.6%), steel mill products (-19.2%) and copper and brass mill shapes (-17.6%).

While the industry saw slight increases in some key components, the drastic decreases in other key components should help mitigate the increases in wages being offered due to the labor shortage.

Key Client Metrics

Upon examining data from RubinBrown’s client base of general contractors, subcontractors and specialty contractors in Colorado, Kansas, Missouri and Illinois, we noted several trends:

For contractors with more than $100 million in annual revenue, average gross profit decreased from 13.0% in 2014 to 12.2% in 2015

For contractors with less than $100 million in annual revenue, average gross profit decreased from 19.1% in 2014 to 18.8% in 2015

On average for all clients, backlog increased on average 40.0% from 2014 to 2015

Economic Forecast

In looking at the crystal ball, the next two years appear to get even brighter from a spending standpoint. Ken Simonson, the Chief Economist of AGC of America, estimates that total construction related spending in the U.S. will increase 6.0 – 9.0% in 2016 and another 5.0 – 7.0% in 2017.

Specifically, he estimates that both private residential and private non-residential will increase 5.0 – 10.0 % and 5.0 – 8.0% in 2016 and 2017, respectively.

Simonson further estimates that multi-family residential spending will increase 8.0 –12.0 % in 2016 while single family residential spending will only increase 6.0 – 9.0%. He cited that multi-family growth is primarily driven by low vacancies and the increasing popularity of the urban areas.

Big Picture

Overall, the construction industry is demonstrating several positive signs. However, the positive momentum will be slowed if the labor shortage is not alleviated in the near future.

Full story here:


RubinBrown’s Construction Services Group

We provide services to general contractors, specialty subcontractors and related companies in the construction industry.

Ken Van Bree, CPA, CGMA — St. LouisPartner-In-Charge

Construction Services Group, 314.290.3429,

Matt Beerbower, CPA — Denver, Partner & Vice Chair

Construction Services Group, 303.952.1252,

Mark Jansen, CPA, CGMA — St. Louis, Partner & Vice Chair

Construction Services Group, 314.290.3208,

Bryan Hinton, CPA — Nashville, Partner

Construction Services Group, 615.685.0391,

 Chris Daues, CPA — Denver, Manager

Construction Services Group, 303.952.1276,

Zach Fritz, CPA — Kansas City, Manager

Construction Services Group, 913.499.4416,

Graham Ryan, CPA — Kansas City, Manager

Construction Services Group, 913.499.4441,

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