CCI Q1 2018: Construction Backlog and Construction Labor Shortage | Construction Podcast

Listen to “A Podcast That Builds” host Ben Johnson and Dodge’s Donna Laquidara-Carr discuss the ongoing construction labor shortage, along with the issues of decreased construction backlog for smaller firms. Below is a transcript of this construction podcast.

   Ben Johnson:    

Welcome to the sixth episode of "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 your host, Ben Johnson, and the subject of this episode will be the CCI from the first quarter of 2018 and to help us discuss that, we have Donna Laquidara-Carr with us here today.

 

Donna Laquidara-Carr:

  Thank you, Ben. I'm fairly pleased to be here today.

 

Ben Johnson:    

So, if have you listened in the past, you'll be familiar with the CCI, but if not, could you remind our listeners what is the CCI?

 

Donna Laquidara-Carr

Sure. every quarter we've been surveying general contractors and Trade Contractors for a publication that the U.S. Chamber of Commerce and USG produces about how the contractors feel about their business. We create an index for that publication by asking them about three things, revenue, construction backlog and their confidence in being able to secure new business. So we also survey them on other issues every quarter that feed into those things, things like profit margin or their ability to access financing. And in particular of this read of what's been of interest, is there concern about the construction labor shortage? And then finally, every quarter we ask a unique topic or trend. We ask questions on that in order to capture how the industry is evolving. And all of these are combined together in a short report.

 

Ben Johnson:    

So, what does the new CCI number this quarter suggests about the current state of construction?

 

Donna Laquidara-Carr

Well, the new CCI number is actually the same number that it was in the fourth quarter, 74. So we do see this as ongoing optimism in the construction industry. However, even though the numbers were the same, the components that make them up weren't exactly the same. We did see confidence and revenue expectations rising, but interestingly, construction backlog was slightly down. However, that confidence measure is particularly interesting because it is at its highest level since Q1 2017. And that is the answer to the question. Are you confident about the ability of the market to supply new business?

 

Ben Johnson:    

  Is there anything that you see as bolstering confidence?

 

Donna Laquidara-Carr

Sure. Of One of the things that we do every quarter is we, in addition to the standard questions that we ask, we always ask two open text questions. One, ask them what they think their biggest opportunities are in the next year and the other one asks them what they think their biggest challenges are. The biggest opportunity question for the first quarter survey was really interesting. There were several people and you know, since it's an open text question, several people usually indicate a lot more people are thinking about the same thing. There were several people who pointed to the tax legislation. They really felt like the tax legislation was going to allow owners to build more and was really going to create a more robust market. And the other thing that was interesting that came out of that is that many people in that open text question talked about opening up new markets and they've been doing that for the last couple of quarters. This could either mean that they're going into new types of work doing things that they haven't done before or new geographies. But there's clearly a lot of contractors that are looking at expansion right now.

 

Ben Johnson:    

So, what about construction backlog and more specifically, are there any interesting patterns there this quarter?

 

Donna Laquidara-Carr

We're still seeing a fewer small firms seeing their construction backlog increasing in the last three months. You know, we asked them if it's, if the backlogs have increased in the last three months, we see fewer of the firms whose annual revenues are less than 10 million saying that they're seeing an increase then those with annual revenues of 500 million or more. So certainly construction backlog is not an issue at all for large companies, but it appears to be slightly weakening for smaller ones. And not surprisingly, this appears to translate into larger firms planning to increase their employment more than the smaller firms. Now this isn't number of jobs. This is, you know, just general. Are you in planning on hiring more people in general and 76% of the large firms intend to employ more people compared to just 48% of the small firms.

 

Ben Johnson:    

So that makes a good segue. And we've talked a lot in previous recordings about the construction labor shortage. So what's, what's new or interesting? This time?

 

Donna Laquidara-Carr

Well, honestly that is one of the interesting things is that things have stayed remarkably consistent. We have five quarters of data now and that number still continues to be a huge problem and we don't see a lot of variation in it. One of the things though, in addition to the shortage of workers where we have seen growing concerns is concerns about the skill levels of those workers, that that number has been rising for the last three quarters. The percentage that say they're highly concerned about that, the individual increases are pretty small. So I don't want to put too much weight on it, but still the last three quarters we've seen it go from 39% in the third quarter of 2017 to 42% in the fourth quarter of 2017 to 44% in the first quarter of this year. And this also suggests that just bringing more people into the marketplace isn't really going to be enough to help solve this problem.

It's a good first step. But the, when they're that concerned about the skills of workers, there's also a big issue. And one of the things we think are pointing to that is that I'm, and again in that free text question, but this one about the biggest concerns rather than the biggest opportunities. Contractors all speak a lot about worrying about the number of workers who are retiring and losing that knowledge and base. Oh, we also see a couple of regions where they have, they had particular problems finding workers this, this quarter and those are the Midwest in the south. And you know, some of this, some of the ones in the south in particular may still be related to the hurricanes.

 

Ben Johnson:    

So, do you think there's any correlation between the smaller firms having less construction backlog and I know that smaller firms also report greater difficulty finding skilled labor?

 

Donna Laquidara-Carr

That's a very good question. We don't have data on it in particular, but certainly the one thing that we do actually know is the trade contractors are turning down work due to the construction labor shortage. So if they're turning down work, then that might be contributing to the slower backlog. So yeah, I think there might be as a strong connection there. Another related area of concern is that GC's in that open text question say that one of their biggest challenges is finding trade contractors to finish projects. So the fact that trade contractors are turning down more work is impacting the GC's as well.

 

Ben Johnson:    

So, are there any other interesting elements in the market?

 

Donna Laquidara-Carr

Well, we do see big expectations about investing in tools and equipment among both GC’s and trade contractors. Overall contracts is 59% say they expect to invest in new tools and equipment in the next, in the next six months. And this is higher than most of the figures that we saw have reported in 2017 there was a brief spike that was about to this level and Q2, but overall, this is notably higher than what we've been typically seeing. And it's up 12 percentage points over the Q1 2017 findings. And it really shows that the contractors are planning on investing in their businesses, that they're, they feel enough confidence in the marketplace to put the money back into their businesses. Another thing that's kind of interesting about that is that in 2017 we were actually seeing that there were differences between GC's and trade contractors here, that, that that in terms of this level of investment, but this quarter it's about the same so that optimism is spread throughout the industry.

 

Ben Johnson:    

So, if anyone is interested in seeing more about the CCI, where can they find this report?

 

Donna Laquidara-Carr

Well, we do publish it directly on construction.com if you go to that website and you look up at the tabs up at the top, there'll be one called toolkit. If you push down on that, you'll see a selection called reports and the CCI will be clearly indicated, not just this quarter but some of the previous quarters as well and they're available for free download from that site.

 

Ben Johnson:    

Perfect. Thank you as always, Donna. Thank you.

Thanks again for joining us on "A Podcast That Builds". As always, you can visit Dodge at construction.com or 877-784-9556. Thanks again for listening. We'll see you next time.