It's tough to find many pessimists in the electrical construction industry who aren't looking forward to another solid business year in 2000. While some markets-like utility construction, airports and factory construction look better than others-the electrical contractors, manufacturers, distributors and economists contacted for this article are upbeat about the 2000 business prospects for the electrical construction industry.

According to the McGraw-Hill's Outlook 2000 Forecast, the U.S. construction market is expected to enjoy another year of record growth. While the $429.3 billion in total construction forecast for 2000 is flat compared to 1999's $428.1 billion, McGraw-Hill's economists say the construction market is flattening out at a level never before seen. Even better news for contractors is the fact that these economists as well as other experts in construction economics see construction work rolling along at this level of growth for several more years.

One manufacturer with a national perspective on the electrical construction market sees a healthy market overall, but a few regional pockets of slow growth. "Like 1999, the construction side of the sales equation looks excellent from coast to coast, but the industrial side looks spotty," said Alan Sipe, senior vice president of sales and marketing, Klein Tools, Inc., Chicago, Ill. "Several industrial areas look excellent, such as the Northwest and New England. The West is going great, and the Midwest continues its steady climb. The remainder is regionally spotty."

Atlanta will continue to be one of the hottest construction markets in the U.S. Vann Cleveland, director of business development, Cleveland Electric, Atlanta, Ga., said there's a lot of construction activity because of all the businesses moving into the area. "When businesses move into an area, you have growth surrounding that, including schools, hospitals, transportation, churches, wastewater treatment plants and other peripheral industries."

Cleveland says the hottest segments of Atlanta's electrical construction market will be telecommunications, and the installation of power for installations such as data centers, transportation rail systems, hospitals, universities, wastewater treatment plants and R&D facilities.

The San Francisco market area, with major airport construction and a healthy commercial construction market is another pocket of growth. One of the largest electrical contractors in the area, Cupertino Electric, Sunnyvale, Calif., is banking on construction of facilities for computer-related companies to remain strong and propel the company to a record year in 2000, with 20% growth to more than $300 million in revenues, said Kevin Kilgore, the company's director of marketing.

"We expect continued positive, steady growth across most market segments, but strongest growth will be in the communications industry: e-commerce, data centers and biotech facilities," he said.

Labor shortages could restrain growth Kilgore sees two potential danger signals ahead: a lack of skilled employees and the volatility of a local economy that's linked so closely to the dot.com world of Internet companies. He is concerned about what could happen if e-commerce implodes.

"Market caps for high-tech stocks are artificially high, with nothing tangible to back them up. Also, we are worried about the talent pool. Where will we get qualified employees? It's a problem at every level in the company: craftsmen, management, engineers and MIS.

"We need to attract and retain good employees. It's a huge challenge. We need an ongoing training effort if we want our company to grow and evolve, and we need to keep training people to find solutions for our customers."

Larry Plunkett, president, Sachs Electric, St. Louis, Mo., and Tony Mann, vice president, E-J Electric Installation, Long Island City, N.Y., are quite optimistic about the business prospects for their companies in 2000. But they have similar concerns about labor. Says Plunkett, "Our biggest challenge is the availability of qualified people: craftsmen and management." Mann echoes Plunkett's concerns on labor shortages: "That's the key thing for us. Labor shortages are the biggest challenges, and it's a problem all across the country."

Cleveland Electric is having similar difficulties finding skilled workers. The company is looking at 15% growth next year in a market that's one of the hottest commercial and residential construction zones in the U.S. Vann Cleveland, said getting qualified labor is a challenge.

"We're a union contractor, so it doesn't affect us too bad. But you still need people going through the apprenticeship program. Because the economy is so strong right now, you have to compete with other businesses to get people into the program." MARKET SNAPSHOTS Here is a quick look at the 2000 business prospects for several key segments of the electrical construction market: residential, utilities, airports, factories and office construction. In Part 2 of ElectroForecast in next month's issue, we will cover store and shopping centers, hotels, and schools and universities.

Residential. Over the past decade, the housing market enjoyed one of its strongest runs ever, and in 1999 it's estimated that housing starts hit 1.235 units. This is a 4% gain over 1998, and the highest level since 1978, according to McGraw-Hill's F.W. Dodge business unit. Those numbers will be tough to maintain in the future, and Dodge forecasts that single-family starts will slide 7% to 1.150 units. Multi-family construction is expected to grow 1% to 420,000 units next year, and at a 5% pace or better in the Northeast, North Central states, and West.

Mortgage rates are expected to stay reasonably low next year, and this will spur some homebuyers to commit to purchases. But it's a demographic fact of life that as Baby Boomers age and pass through their core home-buying years, demand for new homes will slow down because there won't be as many potential buyers in the market.

These demographics have a more direct effect on electrical contractors' business than many companies realize. While single-family housing construction will taper off in the coming years because of the graying of the Boomers, school construction and renovation remains strong, because there's a huge demographic bulge of SOBs and DOBs (Sons of Boomers and Daughters of Boomers) now of elementary school age. Five-to-10 years from now, you can expect to see new construction and retrofits at colleges and universities pick up, as the SOBs and DOBs move on through their college years. Watch the projected enrollment figures for your elementary schools and high schools if you want to get a sense of how fast your local housing market may grow.

Another key demographic statistic to watch if you want to get a handle on the growth prospects of housing construction in your market are estimated population growth figures. These have a direct and immediate impact on housing starts and all types of commercial, retail and institutional construction, and are available in the reference department of any good business library in a publications called Sales & Marketing Management magazine's "1999 Survey of Buying Power."

This resource paints a picture of some regions of the country losing population or experiencing slow to no growth, such as many mature markets in the Northeast and Midwest, and other areas, often in the Sunbelt and Mountain states continuing to grow at an explosive rate. For instance, according to the Sales & Marketing Management report, the following markets will see population increases of more than 20% by 2004: The Denver metropolitan area's Douglas County (+25.5%) Loudoun County, Va. (+21.4%), a Washington, D.C. suburb Flagler County, Fla., near Daytona Beach (+20.2%) Forsyth (+22.3%) and Paulding (+21.9%) counties in suburban Atlanta Nye County near Las Vegas (+20.8%) Austin, Tex.'s Williamson County (+22%)

Utilities. The utility market will be by some measures the fastest-growing of any business segment in the construction market. Utility construction doubled in 1999 over 1998 to $6.2 billion, and McGraw-Hill's forecast says that this market will grow 10% in 2000.

The construction and renovation of power plants has also had a boots from federal and state legislation, as well as from utility deregulation. Utility deregulation, now slowly but surely inching its way across the U.S., means your local utility no longer has the power lines locked up in your market, and that because of state and federal laws, all consumers of electricity will be able to buy their power from a variety of vendors. It's not unlike the scenario that occurred when a federal law opened up the long-distance telephone service to multiple vendors, breaking up Ma Bell's monopoly on long-distance calls. Twenty-four states have passed electricity deregulation programs, most in high-cost energy areas like the Northeast and West, according to McGraw-Hill's Construction Outlook 2000 forecast.

Bottom line is that because utilities no longer will have a monopoly on their local markets, they will have to compete in the open market. That means they now want to trim costs wherever possible, and are more willing to retrofit their current facilities so that they produce power more efficiently, or build new plants that produce more for less.

Paul Madson, president, Border States Industries, Inc., a Fargo, N.D., distributor, points to the power problems in Chicago last summer that were traced to a poorly maintained electrical grid as an example of why utilities are rebuilding their infrastructure. "Many utilities have let their maintenance deteriorate to the point where they finally have do something to ensure the supply of dependable power to their customers."

Madson said Borders States, which has focused on utility business for many years, had a good year in the utility market last year, and he expects another strong performance next year. He sees a direct relationship between deregulation and the fact Border States has more sole-sourcing agreements with electric utilities than with industrials.

"In the new competitive environment, they realize they must operate more efficiently," he said. "They are outsourcing many of the functions they used to perform like logistics and purchasing, and that has worked to our benefit."

And as utilities look for new ways to grow to replace lost revenue from a more competitive market, they have gotten into the installation of energy-efficient electrical systems, and some of them are either buying electrical contractors to do this work for them, or sub-contracting this work to contractors.

This past year, UtilCorp., Kansas City, Mo., an electric utility, bought a stake in Quanta Electrical Services, Houston, Texas, and operates the electrical contractor as an installation arm.