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No Recovery in 2010, Say Contractors in AGC Survey

Jan 27, 2010 2:19 PM

Nearly nine-in-ten contractors say there will be no recovery in 2010 as part of the "2010 National Construction Hiring and Business Outlook Forecast" recently released by the Associated General Contractors of America (AGC), Arlington, Va. 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," says Stephen E. Sandherr, the association’s CEO. "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 early January, shows that privately funded construction activity is likely to decline even further this year. Indeed, 64% of responding contractors expect demand for new manufacturing facilities will decline, while 71% 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% this year from 61% in 2009. Meanwhile, 81% of firms report already having to cut profit margins in their bids just to stay competitive and another 10% say they are now submitting bids so low they will actually lose money on the projects.

Sandherr adds that many construction firms are uncertain that they'll be able to add staff following a year of record layoffs. In 2009, 73% of firms said they laid off employees, averaging 39 layoffs per firm. For 2010, however, 60% 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 notes.

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% say the stimulus helped them retain an average of 24 employees each. Another 15% say the stimulus helped them to add an average of 10 new employees per company, whereas 12% cite the stimulus as driving new equipment purchases.

Sandherr adds the stimulus is driving up expectations for publicly funded construction activity in 2010. He notes that 62% of contractors expect the highway market to improve or remain stable, 61% say water and sewer construction will improve or remain stable, and 55% 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 notes. "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% 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 says. The only truly good news, he adds, is that construction costs remain at multi-year lows, providing good deals for anyone willing to begin a construction project. Citing examples like a Washington, D.C.-area county that is increasing its capital budget in light of the "limited time sale," Sandherr says 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 says.

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