According to Ken Simonson, chief economist of The Associated General Contractors of America (AGC), the Louisiana and Texas construction industry will be strong in 2014, with industrial construction serving as the driving factor. AGC’s recent report, “Optimism Returns: The 2014 Construction Industry Hiring and Business Outlook,” shows a generally upbeat outlook for Texas, Louisiana and the rest of the country in 2014.
“The huge number of industrial projects that have been announced in the past couple years involving oil, gas processing, export terminals, petroleum products, etc. are going to be located in Texas and Louisiana,” Simonson said. “The timing is a bit indefinite but I think a number of these projects will break ground this year and construction is likely to peak in 2016. It will be ramping up steadily over the next few years and remain at a high level.”
Simonson said nationally the power, oil and gas, pipelines and manufacturing industries will increase construction activity by at least 10 percent — the highest projected surge across all sectors. Simonson attributes the high national rise to three major factors: the shale energy boom, construction of the Panama Canal and a residential revival.
“There’s going to be plenty of ancillary and related work with these industrial projects in Texas and Louisiana,” Simonson said. “Just the existence of these projects and of the businesses that will then be operating on those sites is going to draw in population and a need for additional kinds of construction, whether it’s a coffee shop for employees or a hotel to serve business meetings connected with the site. Also, in Louisiana’s case, the state is finally going to see a significant inflow of permanent residents. Historically, the state hasn’t been a fast growing state on population but these industrial expansions could change that for several years. In turn, population growth triggers demand for housing, schools, retail establishments, etc., which is good for general contractors.”
According to Simonson, Texas has been a “consistently hot market” largely from oil and gas field activity and he expects this to continue for 2014. In addition, Texas has seen consistent population growth this past decade at double the rate of the country as a whole — about 1.5 percent a year.
General contractors diversifying
Many firms that specialized in general contracting are now looking for a share of the industrial construction pie. George Wilson Jr., immediate past president of Louisiana AGC and president and CEO of Barriere Construction Co. in Metairie, La., said his company primarily performs highway construction work but is now looking to expand its footprint in the industrial market. According to reports, the Louisiana Department of Transportation and Development has earmarked $650 million for road construction in 2014. In past years, that annual total was $1.1 billion so it seems the boom for highway construction is over in Louisiana.
“As highway funds have dwindled, my company and others like mine will need another source of business,” Wilson said. “We, along with many other contractors in the area, are positioned to respond to the demand of the industrial market and, depending on the work, we’ll be building our core capabilities. For general contractors, whether they were building schools, roads or residential buildings, a number of them are now interested in the industrial work. There’s a need for building supporting facilities, which go hand in hand with the actual site work.”
Simonson echoed Wilson and said he thinks there will be a drop in the number of pure highway contractors and some diversification or some change in business focus among general contractors.
“I certainly think there are companies that see the depleted highway funds at the state and federal levels and realize they need to find a new use of their equipment and expertise,” Simonson said. “And a popular solution right now is to break into the industrial market.”
The work force concern
While the outlook is significantly more optimistic than in past years for Texas and Louisiana, there is still one large area of concern. Many firms in Texas and Louisiana are struggling to find enough skilled workers.
“The big concern I have is where will these two states find all the workers,” Simonson said. “There are very specialized skills needed to do petrochemical plant, pipeline and rail construction.”
Louisiana and Texas officials have continued to list fulfilling the work force demands with qualified applicants as a growing issue as more construction and ancillary jobs come to the states. Among all construction companies polled in Louisiana in the recent AGC outlook, 57 percent believe it’ll become harder to find and hire qualified construction professionals in the state. In Texas, 69 percent of Texas contractors surveyed expect it to be as tough or tougher to find construction professionals and 75 percent of Texas contractors expect it will be as tough or tougher to find skilled craft workers in 2014.
“Louisiana and Texas will have to share this work force,” Wilson said. “The per diems seem to be the big differential about where people will go between the two states. But as far as attracting the workers to each state, I think it will be a friendly com-petition between the two.”
Overall, survey results from “Optimism Returns: The 2014 Construction Industry Hiring and Business Outlook” show many firms plan to start hiring again and most contractors predict demand will either grow or remain stable in virtually every market segment this year. The survey provides a generally positive outlook for the year even as firms worry about growing worker shortages, rising costs and the impact of new regulations and federal budget cutting.
To read “Optimism Returns: The 2014 Construction Industry Hiring and Business Outlook,” visit www.agcmass.org/news-and-events/news/2014-construction-hiring-and-business-outlook-report.
For more information, visit www.agc.org or call (703) 548-3118.
