Seventy-nine percent of construction firms plan to expand their payrolls in 2019 but an almost equal percentage are worried about their ability to locate and hire qualified workers, according to survey results released by the Associated General Contractors of America and Sage Construction and Real Estate. The findings are detailed in the “Contractors Remain Confident About Demand, Worried About Labor Supply: The 2019 Construction Hiring and Business Outlook Report.”

"Construction executives appear to remain confident about their market prospects for 2019 and plan to add headcount to cope with the added workload," said Stephen E. Sandherr, the association's chief executive officer. "Even as they are optimistic about growing demand, contractors are concerned about finding qualified workers to execute projects."

The percentage of respondents who expect a market segment to expand exceeds the percentage who expect it to contract for all 13 categories of projects included in the survey. For every segment, between 23 and 32% of respondents expect the dollar volume of projects they compete for to increase. Meanwhile, for all but one segment, between 11 and 16% of respondents foresee less work available in 2019. The difference between the positive and negative responses – the net reading – is between 10 and 17% for every category except multifamily.

Public building construction scored the highest net positive reading of 17%. Three other segments had a 16% net positive: highway, K-12 school and hospital construction. Projects for federal government agencies and retail/warehouse/lodging both had a net positive reading of 15%. Water and sewer, and transportation facility construction had a net positive reading of 14%.

Four categories had a slightly less-positive net reading: private office construction (13%); manufacturing construction (12%); higher education construction (11%) and power construction (10%). The lowest net positive reading was for multifamily residential construction, at 5%. Association officials said this may indicate that multifamily construction has outpaced demand for now in some locations.

Most contractors plan to add staff in 2019 to keep pace with growing demand. Nearly four out of five (79%) plan to increase headcount this year, up from 75% at the start of 2018 and 73% at the start of 2017. However, just under half of firms report their expansion plans will only increase the size of their firm by 10% or less. About one-fifth of respondents plan to increase headcount by 11 to 25%. Only 7% of respondents plan to increase employment by more than 25%.

Despite firms' plans to expand headcount, 78% report they are having a hard time filling salaried and hourly craft positions. That share was down slightly from 83% at the start of 2018. In addition, 42% expect it will continue to be hard to hire in the next 12 months and 26% expect that it will become harder to hire in 2019.

These labor shortages are having an impact on construction costs and project schedules, association officials noted. One-third of respondents report that staffing challenges drove costs higher than anticipated. In reaction, 37% of firms are putting higher prices into new bids and contracts. Similarly, 34% report projects have taken longer than they anticipated.

Firms continue to raise pay and provide bonuses and benefits in response to labor shortages. Fifty-nine percent of firms report they increased base pay rates. Twenty-nine percent provided incentives and/or bonuses. Twenty-four percent of firms increased contributions or improved employee benefits to cope with workforce shortages.

Many firms are also investing more in training programs for current and new workers, association officials added. They noted that 63% of firms report they plan to increase investments in training and development in 2019, up from 52% at the beginning of last year. Large firms, in particular, are likely to do so, with 71% of companies with more than $500 million in revenue saying they plan to increase investments in training, compared with 59% of firms with $50 million or less in revenue.

"As growing demand and labor shortages force contractors to do more with less, many firms are increasing their investments in labor-saving technologies and techniques such as building information modeling, lean construction and robotics," said Ken Simonson, the association's chief economist.

He noted 32% of respondents report their firms are using methods to reduce onsite worktime, including lean construction, virtual construction techniques or offsite prefabrication. Twenty-eight percent are investing in labor-saving equipment, including drones, robots and 3-D printers.

Officials with Sage noted that 42% of respondents will increase their IT investments in 2019. The largest share of firms, 30%, plan to increase their investments in project and document management software.

Firms also appear to be increasingly comfortable with moving data to the cloud. Thirty-one percent said they are very comfortable with such a step, compared with 24% last year. Yet even as firms embrace information technology, 26% report their biggest IT challenge is that they lack the time needed to implement and train on new systems.

"Contractors are realizing that IT is becoming more diverse and are considering services outside their companies that can do a better, more cost-effective job at managing this important component of their business," said Dustin Anderson, vice president of sales for Sage Construction and Real Estate, North America.

Association officials noted that despite the headwinds of political partisanship and ongoing trade disputes, contractors are optimistic about demand for construction services in 2019. But they noted that the outlook is based on responses that were provided before the recent partial federal government shutdown. And responses were provided at a time when President Trump had announced a halt to pending tariffs on a wide range of Chinese goods as negotiators seek to address trade concerns.

"This means that if Washington officials can't find a way to work together to continue needed regulatory reforms and enact new infrastructure funding, many contractors' more optimistic expectations will not be met," Sandherr said. "And many contractors will be squeezed by growing costs for materials at a time when an expanded trade war will likely undermine private-sector demand if American and Chinese officials cannot resolve their trade disputes."

Sandherr added that the association was committed to making sure Washington leaders act to support continued economic growth in 2019. He noted that the association will continue to advocate for new infrastructure investments, regulatory reforms, federal funding for career and technical education, and comprehensive immigration reform. He added that the association will continue to offer ways to help member firms embrace and adopt new labor-saving technology and techniques.

"Our goal is to ensure that the construction industry expands in 2019 amid growing demand for new projects and an infusion of new and qualified workers," Sandherr said. "If that happens, the entire economy will benefit."

The Outlook was based on survey results from over 1,300 firms from 49 states and the District of Columbia. Varying numbers responded to each question. Contractors of every size answered over 20 questions about their hiring, workforce, business and information technology plans.