California Construction Outlook: Golden Opportunities, Dark Clouds for 2017

By Ken Simonson Chief Economist, AGC of America C

alifornia contractors enjoyed a generally successful year in 2016 and entered 2017 with

good prospects and high hopes. Teir optimism seems well-founded, but there are also clouds on the horizon. Employment increased from the

same month a year earlier throughout 2016, based on monthly reports from the U.S. Bureau of Labor Statistics (BLS). By November, seasonally adjusted construction employment reached 775,100, an increase of 35,100 or 4.7 percent from November 2015 and the highest total since mid-2008. Te growth rate was about double

the U.S. construction employment growth rate of 2.4 percent from Nov. 2015 to Nov. 2016. Job gains were well distributed across construction segments and around the state. Building construction fared

especially well: residential building construction employment jumped by 13 percent and nonresidential building construction by 8 percent. In contrast, heavy and civil engineering construction employment rose by just 1.4 percent, with essentially no change in its two biggest components – utility system construction and highway, street and bridge construction. Specialty trade contractors boosted employment by 3 percent.

Employment Mostly Gaining BLS reports on construction

employment in 29 California metro areas, including multiple divisions of the San Francisco and Los Angeles regions. From November 2015 to November 2016, only one area had a decrease in construction employment: Te Los Angeles-Long Beach- Glendale division, with a decline of 3 percent or 4,400 jobs.

22 March/April 2017 Tere were especially large gains

in the Sacramento-Roseville-Arden- Arcade metro area (6,400 construction jobs or 12 percent) and the Anaheim- Santa Ana-Irvine division of the Los Angeles region (5,500 construction jobs or 6 percent). Close behind were three areas with 4,700 additional jobs apiece: Riverside-San Bernardino- Ontario (5 percent), the San Francisco-Redwood City-South San Francisco division (11 percent) and San Jose-Sunnyvale-Santa Clara (also 11 percent). Meanwhile, the Oakland- Hayward-Berkeley division added 4,500 jobs (7 percent). Two of the state’s smaller metro

areas did even better in percentage terms. El Centro experienced a 17 percent increase (500 combined jobs), second among the nation’s 358 areas for which BLS provides construction estimates. Chico was fifth nationally, with a jump of 15 percent.

Contractors Voice Optimism Te good news is likely to continue,

at least in the view of contractors themselves. Each fall, AGC asks members whether they expect the available dollar volume of projects they compete for will be higher or lower than the year before. In November and early December 2016, 1,281 contractors answered the survey, including 96 that identified California as the state where they do the most work. Nearly half of the respondents

(46 percent nationally and 47 percent in California) said they expect more projects than in 2016, while only 9 percent nationally and 13 percent in California said they expect fewer projects in 2017. California respondents were

especially upbeat about highway projects (a net of +45 percent) and other transportation projects, such

as transit, rail, airport and port construction (net of 44 percent). Tey were also optimistic about higher education (net of 31 percent), power (27 percent), kindergarten-to-high school (26 percent), water/sewer (25 percent) and public building construction (22 percent).

Tere were smaller but still positive

readings for private office (12 percent), hospital and retail/warehouse/lodging (10 percent each), federal and multi- family residential (both 8 percent). Te only category for which negative outran positive views was manufacturing construction (-6 percent).

Ballot Measures Impacts Te sunny expectations appear to

be well grounded. Voters statewide and in many metro areas last November approved large bond and ballot measures to fund highway, other trans- portation, and education construction for years to come. Significant work is continuing at the ports of Los Angeles and Long Beach, transit systems in the Los Angeles and San Francisco areas, and at leading airports. Despite the impressive rain and

snowfall totals early this winter in much of the state, there is still demand to improve the water infrastructure. Major private office construction is ongoing through many parts of the Bay area and in downtown Los Angeles. California’s population growth

from mid-2015 to mid-2016 was slower than in earlier years and slightly less than the U.S. rate. Nevertheless, the state added more than a quarter- million new residents. Tat growth will fuel further demand in various construction sectors.

Immigration Policy Fallout Te state could benefit from

President Trump’s call for more infrastructure spending and from

California Constructor

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