5 Things to Know About the 2015 Construction Industry
For the first time in years, it is difficult to predict what the construction market will do in 2015. Bull market operations exist from construction pros and trade contractors as a whole.
The following are questions that we are looking into for those belonging in the Construction Business Category:
- 1. Who will lead the future of the construction industry?
- 2. Is the market going to sustain a construction boom?
- 3. Are material prices and supply going up too quickly?
- 4. Is technology being used on the job site helps in increasing production output?
- 5. To complete projects in a timely manner is there enough available labor?
Some of the leading experts in the construction industry answer these five questions to help pros and contractors understand what to expect in 2015.
1. FINDING TOMORROW’S PROS
Many baby boomers retire in the construction industry retire in large numbers, thus the need for a pipeline of future leaders and planning is an integral part in the construction business. It remains a primary challenge to finding and retaining:
- a. Effective leaders
- b. Executives
- c. Craftsmen
- d. Workers
In late 2014, a survey AGC conducted:
- a. 83 percent of the 1,086 contractors who responded said they were having trouble filling one or more craft positions
- b. 61 percent of respondents’ companies reported difficulty filling professional positions — primarily project managers and supervisors.
“I expect these pressures to intensify in 2015 now that the unemployment rate for former construction workers has reached an eight-year low,” Simonson says.
We will not ignore areas where skilled labor is at a premium. As a result, this year of 2015 compensation costs are expected to rise quicker than they have in previous years.
“The industry is responding to pent-up demand for commercial projects that didn’t happen during the long recession,” McCarthy’s Lawrence says. “This translates to a growing need for new, highly skilled workers, especially in areas where the activity is greatest, like Texas, California and the Southwest — places where the recovery of the housing bust is going on.”
2. CONSTRUCTION GROWTH INCREASING
Overall spending within the construction industry will be up in 2015.
FMI reported that 2014 saw a 7 percent growth in construction for an annual total of $972 billion. FMI, based in Raleigh, North Carolina, expects the growth to continue to $1.04 trillion in 2015. FMI is a provider of:
- a. Management consulting
- b. Investment banking
- c. Development services
- d. Engineering
- e. Construction industry
From Mr. Brian Strawberry, research consultant for FMI said that, ““Growth in nonresidential construction spending is also very much tied to improving residential market conditions.” In 2014, much of this growth is driven by private investment, as recorded with the exceptional performance in markets of:
- a. Lodging
- b. Commercial
- c. Office
- d. Manufacturing
As predicted by the Associated General Contractors of America (AGC) in Arlington, Virginia, there will be a comparable growth for the construction industry in 2015.
From Mr. Ken Simonson, chief economist for AGC: “Construction spending [rose] at a 6 percent rate, unadjusted for inflation, in the first 11 months of 2014 combined, compared with the same span in 2013. Expect spending to rise another 6 to 10 percent in 2015.”
3. SUPPLY & MATERIAL PRICE EXPECTATIONS
In November 2014, the price of construction materials was 0.6 percent higher compared with November 2013, according to GE Capital’s 4Q 2014 Construction Update. However, material prices declined 0.8 percent in November 2014 compared with October 2014.
“In 2015, construction [supplies] and materials should see price increases in line with GDP growth, which we forecast at 2.8 percent for 2015, throughout most of the U.S. While occasional spikes may occur, we do not expect to see prolonged above-trend price increases for any input materials,” says Jeffrey Englander, senior vice president, senior research analyst for GE Capital, Norwalk, Connecticut.
Pros and contractors can expect a slight increase at the very least, despite the unpredictable nature of material prices across the country.
“Although there could be regional pockets of material price volatility, generally we are expecting typical annual material price escalation rates of between 2 and 4 percent,” says Josh Lawrence, senior vice president and chief estimator with McCarthy Building Cos Inc. in St. Louis.
A function of global supply and demand is the prices of:
- a. Construction materials
- b. Supplies
“Materials prices will raise in 2015, though probably not dramatically,” says Anirban Basu, chief economist for Associated Builders and Contractors Inc., Washington, D.C. “The world economy have slowed recently in many consequential markets, including Europe, China and Russia. Such economic slowdowns decrease the demand for materials. Additionally, the U.S. dollar continues to rise, which also slows commodity and material price growth.”
4. TECHNOLOGY – GADGETS such as PHABLET USE ON UPSWING
Phablets — smartphones with a screen size between a cellphone and a tablet, gorilla glass, with touch screen capability, quad core speed — commonly measure between 5 inches and 6.9 inches in length. One example is the iPhone 6 plus, which measures 6.22 inches. A phablet can display drawings and detailed reports as well as provide phone capabilities. A Wi-Fi printing is also possible with these smart gadgets.
Many contractors use tablets on the job site, previous years these devices lack phone functionality. However, due to evolvement of technology, these gadgets roll into one – phone and tab / mini laptop.
Phones are excellent for communication but can make it difficult to view drawings and reports. Phablets combine the best of both technologies and are expected to carve out a large niche in the 2015 construction market.
“The chief complaint of tablets on site is that the user is required to carry around two devices: their own smartphone and the tablet,” says Lauren Hasegawa, co-founder of Bridgit, a construction software developer, and author of the eBook “Where We’re Headed: Construction Technology Trends for 2015.” “Also, because many companies already provide a smartphone for their teams, the tablet is an additional expense.” These were old designs of gadgets, but already defeated by latest smartphone-tab gadgets since last year.
In 2014, the consulting firm Deloitte predicted phablets would register between 30 percent and 40 percent of the global market, and plateau in 2015.
“Because of the great fit of phablets in the construction industry and their many use cases, we predict the penetration in construction will top that 40 percent,” Hasegawa says.
5. INDUSTRY EMPLOYMENT INCREASING
Residential building and specialty trade contractors added a combined 13,500 employees during December and 132,100 (6.0 percent) over the past 12 months.
In December 2014, construction industry employment hit a five-year high, as the industry added 48,000 jobs, and the construction unemployment rate fell to 8.3 percent, the lowest rate for December in eight years, according to AGC.
Construction employment totaled nearly 6.2 million in December, the highest total since March 2009, with a 12-month gain of 290,000 jobs, or 4.9 percent.
Since December 2013, Nonresidential contractors hired a net of 34,400 workers for the month and 158,200 (4.3 percent).
“Construction employment in December was 290,000 higher than in December 2013,” Simonson says. “Consistent with my forecast for spending, I would expect employment to rise by 250,000 to 300,000 in 2015.”
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