2017 Construction Survey and Business Outlook

Following up on the 2016 Construction Survey we posted last year, the newest 2017 Construction Survey and Business Outlook has recently been published and we wanted to take a moment to share the findings with you.

The survey is conducted by the Associated General Contractors of America (AGC) in conjunction with Sage – developer of popular construction accounting software like Sage 100 Contractor and Sage 300 Construction and Real Estate.

In this article, we’ll summarize the most important survey findings and explain what it all means for the construction industry in 2017 and beyond.

General Construction Industry Outlook

The construction industry has relatively high expectations for 2017 as most firms expect almost every segment in the public and private markets to expand.

It would appear that their optimism is based on the assumption that the economy will continue to grow next year and that the incoming Trump administration will enact significant new investments in a range of public works projects, especially for highways and public buildings. As a result, many firms expect to expand their headcount.

However as optimistic as the construction industry is, it’s somewhat tempered by the following existing and/or potential challenges:

• Continued workforce shortages (which we saw in the 2016 report)
• Increasing healthcare costs and continued battle with regulatory compliance
• Risk that Congress and the new administration fail to deliver on promised infrastructure investments

Market Segment Opportunities

Five times as many respondents (46 percent) expect the overall construction market to grow as the share who expect it to shrink (9 percent), with the remainder expecting the market to remain roughly the same as in 2016.

Optimism in the private sector includes:

• Hospital, Retail, Warehouse, and Lodging – 23% Net Positive
• Private Office – 20% Net Positive
• Manufacturing – 18% Net Positive
• Highway – 15% Net Positive
• Public Building Construction – 15% Net Positive

Respondents are also more optimistic about public sector markets than they were in 2016. The 2017 survey responses saw an increase of anywhere from a few to several percentage points higher net positive outlook for sectors like higher education, K-12 school, water and sewer, transportation, and federal markets.

Worker Shortages

While most firms expect to expand headcount in 2017, worker shortages continue to be a challenge like we saw in the survey results from 2016.

73% of firms report they are having a hard time finding qualified workers, including salaried and craft professionals. And 76% of respondents predict that labor conditions will remain as tight, or get worse, during the next 12 months.

So even though hiring is expected to grow, the shortage of qualified workers will likely keep the increase in overall size of most firms relatively modest.

Most firms are reporting increased pay, benefits, training, and other incentives to retain existing talent and attract new workers.

Tight Margins and Growing Costs

Even as contractors worry about competing for workers, they are also very worried about the tight margins that come from a very competitive marketplace.

48% of firms cited increased competition for projects as among their major concerns.  They are also worried about the continued expansion of regulatory burdens and the growing cost of compliance.  41% percent report they are worried about the growth in federal regulations and 35% responded that they were worried about the growth in state and local regulations as well.

Investment in Construction Technology

This year’s Outlook showed 47% of contractors currently have a formal IT plan that support business objectives versus only 42% in 2016.  It seems that firms are increasingly seeing the value in construction software and related technology that helps them operate in a way that’s more efficient and effective.

Increased competition for jobs appears to be driving more adoption of software tools aimed at obtaining work.  69% of firms report they use estimating and bidding software to help obtain work.

Investment will continue in core business systems such as construction accounting (28% of respondents), project management (22%), document management (22%), and scheduling (16%).

44% of contractors use or plan to use cloud-based software because it provides access to information anytime and anywhere, especially important for improving communication on the job site.

It’s also worth noting that more construction firms are using collaboration technology like document sharing applications, online bid management software, and building information modeling (BIM).

The Bottom Line

While the industry continues to face a handful of challenges, the bottom line is that 2017 promises to be a good year for the domestic construction industry.

Growing demand for construction will help a sector of the economy that, even as it has experienced several years of steady growth, still employs fewer people than it did in the middle of the last decade prior to the economic downturn.

Overall economic conditions indicate next year should continue to be a positive one for the construction industry.  Yet it does appear that the Outlook responses are based as much in high expectations for the incoming Trump administration – with increased infrastructure spending and reduced regulatory burden – as they are a calculated evaluation of current market conditions.