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Norm's Desk

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Construction Employment Declined in 28 States Between September 2011 to September 2012

Many of our contractors are optimistic about their backlogs, but not about their margins.  This AGC analysis goes along way to explain why.  Twenty-eight states saw construction employment drop over the last year:

Among states losing construction jobs during the past year, Alaska lost the highest percentage (-16.1 percent, -2,400 jobs), followed by New Jersey (-10.2 percent, -13,400 jobs) and Nevada (-9.4 percent, -5,000 jobs). New Jersey lost the most jobs, followed by New York (-12,500, -4.1 percent), Pennsylvania (-9,100 jobs, -4.1 percent), North Carolina (-8,400 jobs, -4.7 percent) and Illinois (-8,400 jobs, -4.4 percent).

Texas is not among them.  Indeed, Texas added the most new construction jobs over the past 12 months with 32,800 new jobs (a 5.9 precent increase).  As was noted at the Kiley Advisors briefing last month, Houston has gained back all of the jobs it lost in the downturn.  Texas has been fertile ground.  Construction firms across the country know this.  They entered the market 4 years ago and they have not left.  This has increased competition for bid work and substantially lowered margins.

Will an improvement in the national economy change this?  It might.  But, a larger problem looms.  The construction labor supply is exceedingly tight right now.  We may see an expansion in demand for construction jobs, but who will fill them?  Right now the Eagle Shale and other fracking plays are significantly tightening the labor market.  What happens when other sectors start booming?  We could see construction firms engage in bidding wars for job crews.  Our customers already report efforts to poach their employees working at jobsites.  This will only get worse.  

What can construction firms do?  First, they need to examine their labor costs in their backlog.  Is it too cheap?  If the labor market significantly tightens what will they do to put the work in place.  Second, they need to start focusing now on how they can retain their workers by revisiting their compensation and benefits programs.  Third, notice that neither of the first two items will help margins.  Indeed, margin pressure will only get worse if contractors are not prepared for it.  The recovery may be harder to navigate than the recession.


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