The Commercial Construction Index has been tracking construction industry trends over the past few years. Listen to “A Podcast That Builds” host Ben Johnson and Dodge’s Industry Insights Research Director Donna Laquidara-Carr discuss the findings from the 2017 Q2 CCI Report, including insights into the construction labor shortage and skilled labor shortage and what it could mean for the construction industry. Below is a transcript of this construction podcast.
Ben Johnson:
Hello and welcome to “A Podcast That Builds”, construction industry experts keeping you in the know with news, trends, and analysis that will shape the future of building. I’m Ben Johnson, your host, and joining me today is Donna Laquidara-Carr, why don’t you introduce yourself? You can do a better job than I can.
Donna Laquidara-Carr:
Hi, my name is Donna Laquidara-Carr. I am the Industry Insights Research Director here at Dodge Data and Analytics. I’m part of our analytics group and the division that I work in covers market research. So, we do both custom market research and public facing market research. And I am on the public facing side where we investigate key trends in the construction industry that we believe are transformative.
Ben Johnson:
So today we are talking about labor and the labor shortage across the country. So, Donna, what is the current situation?
Donna Laquidara-Carr:
Well, it’s fascinating. We’ve been tracking data on labor for with the US Chamber of Commerce since the third quarter of 2016 and we have consistently seen that contractors are very concerned about the skilled labor shortage. And this is particularly interesting because they’re not concerned about a lot of the other factors that we’re tracking to test the health of the marketplace. So, I’m in our most current Q2 report, people were very positive about the availability of work, about their revenue streams, about materials costs, but they were very, very concerned about construction labor. And that has been a consistent factor since we started doing these studies. And we see back up from that and other data that we have to, we did a study on risk in the construction industry back in the fall of 2016 and in that one on 81% of contractors agreed that they expected their project risk to increase due to labor scarcity. So, you know, contractors are very concerned about this and it’s an issue that the industry has to address.
Ben Johnson:
So, a question many people want to know concerning the construction labor shortage is, do you think labor shortages will be driving up costs in the near future?
Donna Laquidara-Carr:
We do think that skilled labor shortages could drive up costs, especially if they get any worse because we do see that those contractors report that they’re having difficulty finding skilled labor, say that they are turning down work opportunities. Obviously, fewer bidders leads to higher projects. We also see that many of them are actually charging more, putting in higher bids. So right now, that’s a relatively small percentage of the overall contractors who participate in the survey or report this. But should the construction labor shortage just get worse and that percentage stay consistent, we’re talking about over half who are really highly concerned about labor. So, we do think prices will rise.
Ben Johnson:
So, we definitely know that a labor is a factor all across the country. But the report seems to indicate that there are some disparities in where the skilled labor shortage is currently. Can you talk more about that?
Donna Laquidara-Carr:
Sure. And what’s interesting is that we don’t just track where there’s labor shortages. We attract where people say they’re going to be hiring as well. And we see a lot of activity in hiring in the Midwest and the West, less activity in the northeast and the south, at least in our Q2 report. And yet when it comes to where they’re having the biggest challenges, finding skilled workers in the northeast, we see a very low percentage relative to the rest. Only 44% say that they’re having difficulty finding skilled workers for the rest. It’s just around two thirds. All of them are hovering right around two thirds. So, if you’re in the Midwest or the West and you’re looking to hire quite a bit, but you’re seeing that challenge, you can see where this creates a particular problem in those regions.
Ben Johnson:
So, a lot of the points we’ll be talking about today are included in this CCI report that comes out from the Chamber of Commerce and Dodge. Can you tell me a little more about that report?
Donna Laquidara-Carr:
Okay. And the other major partner besides the Chamber of Commerce is USG. They’ve are a huge supporter of this effort and we couldn’t do it without them. So, I do want to make sure that they get mentioned too, since it’s technically branded. The USG, US Chamber of Commerce commercial construction index. So, we have, we are going to be publishing this quarterly for as far as the eye can see. We started tracking data back in Q3 of 2016. But the first report that we brought out didn’t come until Q2 of 2017. And that’s the cue to report. That very initial report is the one I’ve been citing then when I will be citing throughout this talk. But the, the, but the data is, it’s interesting, we have evolved the questions since we first started doing the research. So, we don’t, we can’t necessarily track every single data point back, but the larger trends, the issues we cover such as workforce, such as backlog up, we have been tracking right from the start. So, we, you know, we waited till we had several quarters of data before we felt confident enough to understand what kind of trends they were revealing and to be able to build the index in a way that we had a great deal of confidence in.
Ben Johnson:
All right. So, Donna, how do we get this information that you’re talking about from the CCI and our other reports? Is that from interviews or how do we gather that?
Donna Laquidara-Carr:
Most of the data that we gather, we get from a quantitative survey process and a lot of it, including the CCI, the commercial construction index, is drawn from a survey of our contractor panel. And our contractor panel is really interesting. We have over 3,500 contractors, both general and trade contractors who are agreed to be part of this panel who have agreed to be surveyed. But we are able to come carefully manage how those surveys are delivered so that we can get large firms and small firms. We can get a nice even balance of GC’s and trades. We can get great regional coverage, making sure that the participation matches the levels of construction we see in different parts of the country. And it creates a very nice portrait of the industry with this sample.
Ben Johnson:
So, what specifically do you watch for? What are the key indicators that will tell you whether the labor situation is changing one way or the other?
Donna Laquidara-Carr:
Well, we’re looking at a lot of different things on labor. It’s the biggest section of questions that we ask in the CCI survey. And one of the things we of course asked about is just the availability of skilled labor. We also ask about the availability of unskilled labor and we’re tracking that as well. We think that could be an important trend in the future, especially as problems continue to grow drawing people into the industry. We also ask about the level of skills. We want to see if people are particularly concerned about the type of skills people are coming in with, not just whether or not there are workers with any skills at all. Because obviously that’s another factor. And in fact, in our Q three report, which we’ll be bringing out in September, we will have more data on exactly what skills people value and where they’re seeing gaps between the, the level of skills and the skills that are needed and considered most important. We also look at again how frequently people are hiring because obviously that’s going to play into things. And even the questions we ask on backlog, which are not technically labor questions also track into how much labor is going to be needed to fulfill the type of backlog that firms already have in place.
Ben Johnson:
So, let’s, let’s talk about why this skilled labor shortage is the way it is. What are some of the, some of the contributing factors to what got us to where we are today?
Donna Laquidara-Carr:
We don’t have any direct data on this. We haven’t asked contractors directly about this, but certainly some of the materials I’ve seen in the industry have suggested that there’s a lot of different factors. Demographics is a huge one. We have a lot of baby boomers retiring from the industry. And in fact, that problem has been worsened because a lot of them couldn’t retire during the, during the downturn there, their financial situation was too impaired. They had to stand longer. So, there’s, they’re actually expecting a bigger cliff now that there’s a recovery with more people. So that’s a huge factor. There’s also the concern that we’re not drawing enough of younger people into this industry. The age average age of workers from out of the research that I’ve seen published by the government keeps growing. So, you know, we need to make sure that we’re, that the younger generation feels that this is an appealing industry, which is one of the reasons why we think the studies we do on safety and some of the other issues are so important so that we can demonstrate strides that the industry is making in those areas.
Ben Johnson:
So, Donna, how would a specific event like Harvey and Irma, for instance affect the labor situation in those areas? And does that, does that effect a trickle out into surrounding areas?
Donna Laquidara-Carr:
I mean, we really are very interested in this. We expect it to have some trickle out effect, but we’re, particularly when we track regions, we do it in as a four major region. So, we’re looking at the south in general for both Harvey and Irma that the Texas and Florida both fall into those areas. And we see that in the Q2 fights study to south had the highest percentage who reported a high degree of difficulty finding skilled workers. In addition, while only 17% are performing, they’re reporting the same for unskilled workers. They really are about half, at least rating it moderately difficult to find unskilled workers. And it may be those unskilled workers in the end of the day, that may be the biggest problem. When you look at storm recovery, a lot of the work that happens, at least in the early stages before you get to the full-on rebuilding involves unskilled workers even more than skilled workers.
So, the fact that half are nearly half 41% are already concerned that they’re not seeing enough unskilled workers. And then the storm happens. People evacuate. And the challenges that occur in trying to bring people in is it really could increase costs in the region. It could create problems with how quickly the rebuild could happen. We are interested in tracking this. Now. One of the challenges that we face, at least when it comes to Harvey, is that our Q four study is just about to launch. And we’re afraid that a lot of the contractors in Texas and Florida might not be back in time to take the survey. So, we’re not sure what kind of response rate we’re going to get and whether we’re going to really be able to start seeing the impact of those major events in our Q4 data. But we certainly know that this is going to be a long-term issue. So, we’ll, we do expect once things stabilize and the next round of surveys launched that we should have some very interesting data moving forward on that.
Ben Johnson:
So, I can’t help but thinking when you’re talking about an unskilled labor about immigration policy, it will that have a notable effect, especially in, in times of dire need for unskilled labor. Like after Harvey and Irma…
Donna Laquidara-Carr:
I mean it’s still too early to tell for sure, but we definitely think this is something worth keeping your eyes on. The, the statistic I quoted earlier was the south concern about unskilled short, unskilled labor shortages, but 35% of contractors overall in the U.S. also rated some level of concern on, you know, of about this issue, about the availability of unskilled labor. And we really think that we know for a fact that undocumented workers do contribute. Of course, no one has exact figures about how many undocumented workers they’re contributing to that workforce. So, we do anticipate that stricter policies on immigration, especially as we’re facing these big rebuilding efforts in areas where undocumented labor tends to be a larger percentage of the unskilled labor force, we do anticipate that this is going to create some challenges in the industry.
Ben Johnson:
So, the CCI report, is that free? Is that available to anyone?
Donna Laquidara-Carr:
Yeah. And if you just go to construction.com and then go to Toolkit, you’ll be able to see not just the CCI but all of the other trend research that we’ve been publishing and all of that is available for free download.
Ben Johnson:
So, looking forward, what does Dodge and what does your team do? And where, where will that information be available?
Donna Laquidara-Carr:
So, one of the advantages of the CCI is that it’s a quarterly report and since it’s a quarterly report that asks a lot of questions on labor, we’re going to have a lot of data on labor moving forward. We’re really excited about gathering that data over time because trends will become much more clear. The importance of shifts will be more evidence. So, we think we’ll be able to do a richer analysis of the data actually as we move forward as well. So certainly, keeping an eye on the CCI is one way to, to, to see how these labor issues will change over time. Another key thing that dodge has outside of my group is they, you, we bring out an annual outlook report. The current one is due out in November with chief economist Bob Murray and were that is a critical piece for me and for the rest of the industry to look at what construction activity will happen, which will really be possibly the most influential factor in the labor requirements needed.
Ben Johnson:
Oh, thank you very much, Donna. That was great. To learn more about Dodge, you can call us at (877) 784-9556 or visit us at construction.com under Toolkit Reports, you have access to the full CCI report that Donna referenced in today’s episode as well as future CCI reports as they’re made available. The third quarter CCI report will be available on September 18th. Thanks for joining us on the inaugural episode of the Dodge toolbox talks podcast. We hope to see you again soon.