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New Survey Shows Improved 2013 Industry Outlook

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Significantly more construction firms are planning to add new staff than plan to cut staff, while demand for many types of private-sector construction projects should increase this year, according to survey results recently released by the Associated General Contractors of America and Computer Guidance Corp.

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The survey, conducted as part of “Tentative Signs of a Recovery: The 2013 Construction Industry Hiring and Business Outlook,” provides a generally optimistic outlook for the year even as firms worry about rising costs and declining public-sector demand for construction.

“While the outlook for the construction industry appears to be heading in the right direction for 2013, many firms are still grappling with significant economic headwinds,” said Stephen E. Sandherr, the association's chief executive officer. “With luck and a lot of work, the hard-hit construction industry should be larger, healthier, more technologically savvy and more profitable by the end of 2013 than it is today.”

Sandherr noted that significantly more firms are planning to add staff this year compared to the number of firms expecting to make layoffs. He said that 31% of firms plan to add staff this year, while only 9% plan layoffs. The scope of those staff additions are likely to be modest, however, with 79% of firms reporting they plan to hire 15 or fewer people in 2013 and only 13% planning to hire more than 25 new workers this year.

Among the 30 states with large enough survey sample sizes, 56% of firms in Maryland plan to hire new staff this year, more than in any other state. Only 14% of firms in South Carolina plan to add staff this year, the least amount in any state. Meanwhile, 37% of firms in Michigan plan layoffs for this year, the highest percentage of any state. No firms working in Maryland reported plans to make layoffs this year.

Contractors appear increasingly optimistic that demand for certain private sector projects will expand this year, Sandherr noted. Firms are most optimistic about the outlook for hospital and higher education construction, he said, noting that 36% of firms predict the amount of money spent on those projects will grow in 2013 while 39% of firms expect the market will remain stable compared to last year. Contractors were also optimistic about the markets for power construction, but had lower expectations for manufacturing; private office and retail, warehouse and lodging construction.

Meanwhile, contractors expect demand for many types of public construction will decline in 2013. For example, 40% of contractors report they expect demand for public buildings to shrink in 2013 while only 18% expect that market to grow. Another 37% of contractors report they expect demand for K-12 school construction to shrink while only 20% expect it to increase. And 35% of contractors expect the market for manufacturing facilities to shrink this year, while only 23% predict it will expand.

A significant – but smaller than last year – number of contractors report that customers’ projects have been delayed or cancelled because of tight credit conditions. Forty percent of responding firms reported that tighter lending conditions have forced their customers to delay or cancel construction projects. Only 3% of firms reported having an easier time getting credit while 41% report no change in credit conditions.

“Unfortunately, there are almost as many causes for concern as there are signs of optimism,” said Ken Simonson, the association's chief economist. “Demand for public buildings is set to decline, manufacturing work appears to be slackening, materials prices and health-care costs continue to rise, and many firms are reluctant to make major investments in new equipment.”

Simonson noted that overall demand for new construction equipment is likely to remain modest in 2013. Sixty-four percent of firms plan to purchase new equipment this year, down from 70% last year, while 77% of firms plan to lease this year compared to 78% in 2012. Contractors are increasingly relying on leasing equipment to avoid having to pay for idle equipment during lags in construction activity, the economist noted.

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