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AGC 2018 OUTLOOK SURVEY


More Construction, More Costs Loom for California Contractors


By Ken Simonson Chief Economist, AGC of America C


alifornia contractors are heading into 2018 with high hopes but also the expectation


of higher costs for both labor and materials. Several policy uncertainties may also affect the final results for the year.


Te optimism was on display in


the annual outlook survey of member companies that AGC of America released on January 3, 2018. Nationally, for the first time in the 10-year history of the survey, a majority (53 percent) of the 1,046 respondents said they expect the dollar volume of projects available to bid on in 2018 would be higher than in 2017. Only 9 percent said they expect a lower dollar volume, for a net positive reading of 44 percent – seven percent higher than in the year-earlier survey. (Te remaining 37 percent of respondents said they expect 2018 volumes to be about the same as in 2017.) Of the 81 respondents who listed


California as their principal state of operations, two-thirds were optimistic and only 7 percent were pessimistic, for a net positive reading of 60 percent. As to their view of 13 specific construction segments, transportation construction registered the highest net reading: 57 percent, far above the 21 percent net for this category nationwide.


Transportation on Rise Tere is good reason to expect a lot


of transportation work in California, not just in 2018 but for several years to come, as a result of legislative and voter approvals. Airport reconstruction is hitting full stride in Los Angeles, picking up in San Francisco, and in the wings in San Diego. Major transit projects are under way in the Los


16 March/April 2018


Angeles and San Francisco metro areas. Port expansion is continuing


in Long Beach, Los Angeles and Oakland. And funding continues – for now, at least – for high-speed and other intercity passenger rail. In contrast, nationally, it appears unlikely funding will increase for projects other than airport modernizations and expansions. California respondents were


also upbeat about highway and public building construction, with net positive readings of 42 percent for both segments. Te start of the complex and expensive 405 tolling and expansion project in Orange County and the introduction of higher fuel taxes statewide on January 1, 2018 suggest that highway construction spending will, indeed, exceed recent totals. However, contractors and their allies appear to have quite a fight on their hands to convince voters not to roll back the tax increases before that spending translates into improved travel.


Challenges: Labor, Material Costs


Finding employees to perform all


of this work will be a challenge. Nearly three out of four California respon- dents said their firm is having a hard time filling either craft positions (74 percent), salaried positions (71 percent) or both. While the percentage having difficulty filling craft slots was similar to the 71 percent national rate, the difficulty finding salaried workers was far above the 57 percent national rate for those positions. Tat difficulty could worsen if


immigration policies and enforcement tighten further. California employers – not just in construction – depend more than in many states on foreign- born workers for hourly, salaried and


executive jobs. Te competition for all workers will heat up even more if would-be immigrants are denied entry or discouraged from coming and workers already in the country are detained, deported or driven underground in greater numbers. Another concern for contractors is


rising materials costs. On January 11, 2018, the Bureau of Labor Statistics reported that the producer price index for inputs to construction, goods – a measure of the selling price for all materials used in construction including diesel fuel and other items consumed by contractors – increased by 5.0 percent in 2017. Tat was the steepest full-year jump since 2011. Stiff price hikes in January for rebar, wallboard, copper and oil futures suggest contractors will have to swallow, or adapt to, higher costs for many key items in 2018. Meanwhile, the Trump administration has threatened to unwind trade agreements and impose tariffs that could push materials costs even higher.


New Tax Law’s Impact Te new federal tax law may


also curb the enthusiasm of some contractors, especially in California. Te very high price of housing means that homeowners in the state will feel the new $10,000 limit on deductibility of state and local taxes more than in most states. Tat may depress demand for home construction (but also possibly add to demand for multifamily rental housing). If property values and tax receipts rise more slowly, state and local


California Constructor


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