According to a recent Vistage survey, optimism from business leaders in the construction industry is slightly lower than the national average. Vistage polled hundreds of member CEOs and leaders from the construction industry on their feelings about the current state of the U.S. economy and the construction industry as part of its Q2 2018 CEO Confidence Index survey. While the survey found that five in seven construction CEOs expect to increase revenue in the year ahead, underlying concerns around sustained growth were also revealed.
The U.S. construction industry is booming and, historically, this would indicate growth in the economy and other business areas. A bustling commercial construction industry is usually indicative of developers investing capital in a variety of projects and driving growth in the economy. In fact, the real estate blog Curbed recently noted that spending on U.S. construction projects hit $1 trillion in November. However, less than a third (31 percent) of construction CEOs expect the economy to improve in the year ahead, according to Vistage.
This lack of optimism can be attributed, at least in part, to the housing crisis of 2008. Even ten years later, many construction CEOs remain cautious and are focused on doing everything they can to mitigate potential risks in the future.
But a variety of current challenges cause new risks and are contributing to lower industry optimism.
Talent shortage
Sixty-four percent of construction CEOs plan to expand their workforce in the next year versus 61 percent nationally according to Vistage. Yet, hiring remains one of the most significant challenges facing construction business owners today. There has been a decline in enrollment in trade schools and apprenticeships that usually produce qualified and younger workers for the industry. At the same time, older workers who have tenured experience in the industry are beginning to retire, leaving a wider skills gap than ever before. To combat this, many construction CEOs are leveraging new technology such as digital recruitment tools to find and hire qualified talent faster.
Rising costs
The cost of building materials such as plywood, aluminum and steel continue to rise. The tariffs imposed on steel and aluminum earlier this year threaten to drive costs up even higher. It’s too early to tell whether or not this will have a negative effect on businesses heading into 2019 but significant impacts could result, such as project delays or cancellations. More expensive materials can inhibit growth for businesses that may be dealing with cash flow issues or those that are just starting out in the industry. Even something that seems insignificant, such as a small bump in interest rates, can derail the fate of a construction project.
Increased demand
Even though optimism might be lower than expected, the market does not seem to be slowing down and the increased demand from developers to build more continues. The challenge will be for business owners to slow down, conduct due diligence on all projects and expenditures and thorough analysis of what it will take to complete them. Stakeholders in the construction industry learned a lot coming out of the recession and many business owners are still recovering. Companies must not forget the important lessons learned now that the industry is surging again.
Navigating business challenges in any industry is never easy and construction business leaders have a wide range of complex factors that contribute to the success or failure of their business. The good news is that this is a time of great opportunity, and there are a variety of resources and insights about the current state of the industry and where it’s headed that can be immensely helpful in making smarter business decisions.
A healthy dose of caution, as pointed to in Vistage’s recent study, can be smart business—especially if it drives decision makers to effectively leverage industry data and research to make more informed, better decisions. In the long run, a little less optimism may reap bigger and more sustained rewards in the future.
