Revenue Sluggish as Tight Workforce Constrains Activity
Although the Midwest construction industry gained momentum in 2014-advancing prospects for designers and contractors alike-many of the region's specialty contractors failed to keep pace, circumstances some economists conjecture may have been due to a lack of sufficient workers to bid on larger projects.
"In labor-constrained environments, firms with greater financial flexibility are using it to train and retain labor, leaving competing enterprises with fewer workers and a corresponding revenue slump," says Anirban Basu, chief economist with Washington, D.C.-based Associated Builders and Contractors.
A 2014 survey by Associated General Contractors of America (AGC), Arlington, Va., found that 71% of Midwest contractors and specialty contractors faced labor shortages, compared with 53% in the West and 55% in the Northeast.
The chasm between firms capable of attracting labor and those having difficulties doing so may deepen as regional market conditions improve, says Basu, who notes the region continues to benefit from solid-if not spectacular-industrial output and corresponding construction activity in the manufacturing sector.
However, a recent and dramatic slowdown of the Chinese economy, as well as the economies of developing countries, "should be of concern to any export-driven enterprise in the region, such as Caterpillar," says AGC chief economist Ken Simonson. "There's also near-zero economic growth in Europe and Japan."
Falling oil prices, on the other hand, are expected to bode well for retail, hospitality, dining and service sectors, both in the Midwest and elsewhere, Simonson says.
Midwest metro areas most likely to benefit from commensurate increases in construction include Chicago, Indianapolis and Cleveland, all of which are enjoying revivals due to an influx of millennials, many of whom prefer to live in apartments.
In downtown Chicago, no fewer than 3,000 new apartments are due to come on line this year, with 5,000 more in 2016. "There may be an end to the region's apartment boom, but I don't see it coming for another two to three years," says Basu. "Rents are rising quickly and will continue to do so as millennials continue to opt for apartments rather than home ownership."