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Seventy-Three Percent of Construction Firms Plan to Expand Headcount in 2017

Seventy-three percent of construction firms plan to expand their payrolls in 2017 as contractors expect private and public sector demand to grow in all market segments, according to survey results released today by the Associated General Contractors of America and Sage Construction and Real Estate. Despite Jan. 10, 2017, general optimism outlined in “Expecting a Post-Election Bump: The 2017 Construction Industry Hiring and Business Outlook,” many firms report they remain worried about the availability of qualified workers and rising health and regulatory costs.


All but a handful of contractors expect the overall construction market to expand or remain roughly the same in 2017 compared to 2016. A total of 46 percent of respondents said they expect a higher dollar volume of projects in 2017 than in 2016, versus just 9 percent who expect a lower volume, for a net positive reading (based on unrounded numbers) of 36 percent. The remaining 45 percent expect volumes to remain more or less constant.


Contractors had a positive outlook, on net, for all 13 market segments included in the survey. Respondents are most optimistic about the outlook for both the hospital and retail, warehouse and lodging markets (23 percent net positive for both). Respondents were also positive about the outlook for private office (20 percent net positive), manufacturing (18 percent), highway (15 percent) and public building construction (15 percent) construction. And they are optimistic about the prospects for higher education construction (14 percent), K-12 school construction (14 percent) construction and water and sewer construction (14 percent).


The only market segment where contractors are less optimistic this year than they were last year is the multifamily residential sector, where there is an 11 percent net positive for the year vs. a 14 percent net positive last year. It is important to note, however, that most respondents completed this survey in the days and weeks following the elections and may have based some of their optimism on the recent growth in stock market values and the fact the president-elect has repeatedly promised to make new investments in infrastructure, association officials noted.


Association officials noted that 73 percent of firms say they will increase their headcount in 2017. That hiring will only lead to modest increases in the overall size of firms, however. Sixty-six percent of firms report their planned hiring will increase total headcount between 1 and 25 percent while only 6 percent report they will expand their headcount by more than 25 percent this year.


Among the 28 states with large enough survey sample sizes, 94 percent of firms in Massachusetts plan to expand their payrolls in 2017, more than in any other state. Meanwhile, 45 percent of firms in Illinois report they plan to reduce headcount this year, more than in any other state.


One reason many firms expect to make only slight increases to their headcounts is that they appreciate how difficult it will be to find enough qualified workers to hire. Indeed, 73 percent of firms report they are having a hard time finding qualified workers. And 76 percent of respondents predict that labor conditions will remain tight, or get worse, during the next 12 months.


Most firms report they are increasing pay and/or benefits to retain or recruit qualified staff to deal with worker shortages. Fifty-two percent report they have increased base pay rates, 35 percent report they are providing incentives and/or bonuses and 28 percent report they have increased contributions to employee benefits. Even as firms increase compensation, 52 percent report they plan to increase their investments in training and development in 2017 compared to 2016.


In addition to coping with worker shortages, contractors are also worried about the continued increase in health care and regulatory compliance costs. Eighty-four percent of firms report the cost of providing healthcare for their employees increased in 2016 while 82 percent expect their healthcare costs will increase in 2017. And 41 percent of firms report they are worried about the growth in federal regulations.


Even as firms spend more on healthcare and regulatory compliance, they are prepared to increase investments in information technology. According to the outlook, 35 percent of firms report they invested at least 1 percent of their revenue in IT last year. In addition, 40 percent say that their IT investments will increase in 2017. Contractors are also becoming increasingly aware of the need to better protect their data. Seventy-seven percent of respondents report they currently have an overall IT plan in place to prevent against hacking.


Association officials noted that overall economic conditions indicate 2017 should continue to be positive for the construction industry. But they added that it appears the outlook responses are based as much in high expectations for the incoming administration and the president-elect’s commitment to investing in infrastructure, improving federal health care laws and reducing regulatory burdens.


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