Gilbane’s Report Finds Multi-Sector Gains in 2015 Growth & Profits

PROVIDENCE, R.I. — Gilbane Building Company recently announced the findings from its in-house quarterly economics report: Building for the Future – Construction Economics: Market Conditions in Construction. Among its most notable findings, the report indicates 2014 construction spending will finish the year 5.4 percent higher than 2013, noting all sectors have contributed to growth. Further, most major nonresidential markets, including education, healthcare, commercial retail, office and manufacturing, along with residential construction will all realize much-needed spending increases in 2015. Still, favorable growth conditions in the coming year will be met with an ongoing shortage of available skilled workers, driving up labor costs and impacting productivity.

“The most favorable, forward-looking conditions I’ve seen in years support my expectations for strong growth and profits across multiple sectors in 2015,” said the report’s author Ed Zarenski, a construction economics analyst and former Gilbane estimating executive with more than 40 years in the construction business. He added, “Very active markets will drive escalation to climb more rapidly than we have seen in six years. That said, enthusiasm around these positive indicators must be tempered by the fact that an ongoing reduction in trained workers and management level personnel will continue to have a detrimental effect on cost, constraining the rate of expansion and forcing extended work schedules.”

According to the report, total spending across all types of construction grew 5.4 percent year over year from 2013 to 2014 and the industry’s unemployment rate is back up slightly at 8.3 percent after hitting a seven-year low in October 2014. Over the past year, jobs growth has averaged 24,000 per month — the fastest growth rate since 2005 — an important figure given the report’s assertion that continued growth in nonresidential buildings and residential construction into 2015 will lead to more significant labor demand.

Other report highlights include :

• 2014 started at an annual rate of spending near $950 billion and finished at a rate of $990 billion.
• Nonresidential buildings contributed to the dips in March and June, but helped lead the expansion for the second half of 2014.
• Cash flow of new starts for nonresidential buildings indicates a 15 percent increase in the monthly rate of spending over the next 10 months.
• A correlation between the Architectural Billings Index, Dodge Momentum Index and new starts cash flows has twice predicted the direction of nonresidential buildings spending over the last two years. Current forward look shows a flat period in Q4 2014 then a rapid rise in 2015.
• Real inflation adjusted constant construction volume is still 22 percent below peak and has not yet returned to the level of volume in 1993. At the historical rate of volume growth, it will take seven to eight more years to regain previous peak volume levels.  
• Currently there are 6.17 million jobs and the total workforce is near 6.7 million, about 1.5 million (18 percent) lower than the 2006-2007 peak.
• Since January 2010, between 400,000 and 700,000 workers have left the workforce. As workload expands in the next few years, a shortage of available skilled workers will continue to drive up labor cost and have a detrimental effect on schedule.
• The U.S. gained 290,000 construction jobs over the last 12 months, up 13 percent from the low point. Jobs plus hours worked show that total labor effort is up 18 percent.   More than forty percent of the total increased labor effort in the last four years is due to added hours.  

The complete report, Building for the Future – Construction Economics: Market Conditions in Construction, and its executive summary are available free for download at http://www.gilbaneco.com/economic-report.