Tax Reform's Positive Impact on the Construction Industry

Congress recently passed the most significant tax reform legislation since 1986. The Tax Cuts and Jobs Act, approved in late 2017, should have a positive impact on design and construction companies, as key provisions of the legislation will converge to drive business investment, employment and wages.

Fundamental aspects of the law include:
•It cuts the corporate tax rate from 35 percent to 21 percent. The new 21 percent flat tax rate will benefit construction companies set up as C corporations.
•Construction companies that are pass-through entities (meaning they can include business profits on their personal tax returns, with examples including sole proprietorships, partnerships and S corporations) will get a 20 percent deduction on that income.
•Businesses with less than $25 million of gross receipts for the preceding three tax periods can now use the cash method of accounting. Many contractors also can now use the completed contract (instead of the percentage-of-completion) method for construction contracts.
•Private activity bond financing will retain its tax-free status, which will keep more funds flowing to the public construction sector.

After Congress passed the legislation, Associated Builders and Contractors (ABC) President and

CEO Michael D. Bellaman released the statement, “The vast majority of construction companies will benefit from the new 20 percent deduction for qualified pass-through income, bringing the top effective rate to 29.6 percent, down a full 10 points. The rest will feel a boost from the largest corporate rate cut in U.S. history. Changes to various accounting methods will ease burdens for many small contractors and the doubling of the estate tax exemption to $11 million is a big win for our industry’s family businesses.”

The construction industry has been paying a higher effective tax than any other sector of the nation’s economy, according to ABC reporting on a U.S. Department of Treasury analysis.

Changes brought about by the tax overhaul, in conjunction with President Trump's proposal for a $1.5 trillion infrastructure plan as outlined in “Legislative Outline for Rebuilding Infrastructure in America,” should stimulate significant growth and activity in the construction sector. Construction firms will enjoy more capital to invest, greater flexibility and less regulation.

Driving consumer demand
By the end of 2017, economic momentum was solid and business and consumer confidence were on the rise. The Brookings Institute reported that 81 percent of taxpayers will see a tax cut from the tax reform legislation, averaging more than $2,000 per year, and that only 4.8 percent of taxpayers (primarily very high earners) will see a modest increase. Having better availability of funds should correlate to increased demand on the part of consumers, both for goods and services, as well as for design and construction services.

Freeing up company cash
Keeping more capital in a business allows that business to reinvest. Near-term investment on the part of construction companies will likely take several forms. Some public companies will use the extra cash to buy back stock. Others will invest in their businesses via capital expenditures (CAPEX), new hires, and increased salaries and benefits for their employees. Capital-intensive businesses such as manufacturing companies can utilize the additional capital to fund the cost of facilities and equipment.

The construction industry overall is a “capital-intensive, cash-flow challenged, domestically oriented industry comprised mostly of small, family-owned and closely held merit shop construction companies employing hardworking Americans,” Bellaman said. “[ABC] members have waited for Washington to let them keep more money in their paychecks, which would enable them to invest back in their businesses, create new jobs in their communities and grow the economy. The wait is finally over.”

The new legislation will have a significant positive impact for small to mid-size businesses. These companies, which traditionally relied on bank loans for additional capital, will be able to take an immediate tax deduction to use as equity for their investment, thus encouraging further growth and expansion.

Another potential plus for design and construction firms is the tax advantages for smaller firms. “Gaining tax relief for architects who organize as pass-through companies—which includes the majority of U.S. architecture firms—is a significant improvement over earlier drafts," said Carl Elefante, National AIA 2018 President, in a December 2017 statement. “So is preserving at least in part the Historic Tax Credit, which was totally abolished by the original House tax reform bill.”

Investment in people
According to the Tax Foundation, the tax legislation will lead to the creation of nearly 339,000 full-time equivalent jobs. In addition to more new jobs and capital investment, legislation is expected to result in higher salaries and better benefits. In the recent National Association of Manufacturer’s survey, almost 54 percent of CEOs in the survey said they would hire more workers, and nearly half (48.8 percent) said they would increase employee wages and benefits.

Survey results from ABC's December 2017 Construction Confidence Index showed that 55 percent of contractors expect their profit margins to expand in the first half of 2018. In a news release announcing the survey results, ABC Chief Economist Anirban Basu said, “There are many reasons for confidence among the nation’s construction firm leaders. American wealth has never been greater in absolute terms as the economy experiences faster wage growth, surging equity markets and rising home values. Consumer confidence is at a 17-year high, while unemployment is at a 17-year low.”

Competitive Advantage
A recent Goldman Sachs study reported that U.S. firms have more than $3.1 trillion invested overseas. The Tax Cuts and Jobs Act will serve as a strong incentive for these firms to bring their investment back home. The investment will be in the form of property, plants and equipment for facilities.

Prior to the legislation, the United States had one of the highest corporate tax rates in the world. According to the Tax Foundation, the average tax rate amongst developed countries was 22 percent. As already noted, the Tax Cuts and Jobs Act will reduce the U.S. corporate tax rate from 35 percent to 21 percent. By aligning U.S. corporate tax policy with other industrialized countries, Americans stand to gain as companies bring cash back. Design and construction firms will see an uptick in work as companies re-shore.

Construction firms will keep a close eye on the industry’s response to tax and infrastructure changes in 2018…and they’ll be working closely with their tax accountants to reap the benefits now allotted to small and midsize companies. With optimism levels reported to be high, a new outlook for the building professions may be on the horizon.

This article originally appeared in Construction Executive.

FMI Forecasts Continued Growth in Construction for 2017

FMI Corporation has released its latest construction forecast, the FMI Outlook, in a new streamlined format, designed to improve user experience and access to important data.

FMI’s Q3 2017 forecast predicts an increase of 4% for total construction put in place for 2017 and an increase of 5% in 2018.

The primary growth segments in 2018 are expected to include residential, commercial, lodging, office and manufacturing — all with forecast growth of 5% or more. Most other segments are likely to grow roughly with the rate of inflation and may therefore be considered stable. Sewage and waste and water supply are the only segments expected to decline in 2018.

The score for the third quarter Non-Residential Construction Index slipped two points to 58.8 but maintains a level of optimism for construction spending in 2018.

Forecasts for some key sectors:

Lodging — Up 5% for 2017, lodging construction is coming off several years of strong double-digit, year-over-year growth since 2012. Supply is outpacing demand, causing increasing vacancy rates.

Office – Up 9% for 2017 to $73.4 billion. Still seeing positive growth, but moderating after double-digit gains during the past three years. Slowdown in high-tech development of office space is the primary drawback on forecast growth.

Commercial — Up 10% for 2017. Several traditional brick-and-mortar retailers closing stores in large numbers. Continued rise in e-commerce as a percent of retail sales driving demand for warehouse and distribution center construction.

Read the full report.

The New Silica Standard: What Owners Need to Know

Silica may not sound like an issue that needs to be addressed by facility owners. But this ubiquitous mineral compound is a major component of the actual bricks and mortar that companies build with, and it has made news lately as a substance being targeted by the Occupational Safety and Health Administration (OSHA).

Construction companies will soon incur large costs as they strive to comply with OSHA’s new silica standard and mitigate risks for employees working in the presence of silica-containing materials. A ripple effect is predicted to be felt across many industries, as well as upstream for facility owners that are planning new construction, expansion or retrofit projects. Of particular concern for facility owners will be the modifications or expansions of existing facilities. Simple activities like concrete saw cutting of slabs can have an impact on both the construction and maintenance groups performing the work, as well as on surrounding employees, if not addressed through the proper training, equipment and planning.

Moreover, like the disclosure of asbestos and lead, disclosure of known silica-containing materials must be part of any facility purchase, upfit or renovation. Additionally, the presence of silica can pose a hazard to occupants of the facility and adjacent properties.

Silicon dioxide (aka silica) can be crystalline or noncrystalline, with quartz, cristobalite and tridymite being examples of crystalline silica. Asphalt, concrete products, drywall, plaster, roofing pavers, fill dirt and top soil, various stones and stucco are some, but not all, of the silica-containing construction materials that may be on a manufacturing facility jobsite.

Workers across many trades are potentially exposed to silica. When silica-containing materials are cut, blasted, crushed or ground, particulates—respirable crystalline silica—become airborne and represent a serious hazard to workers.

OSHA updated its silica standards in 2016 for the first time in over 40 years. The construction industry was required to comply with the new rule (29 CFDR 1926.1153) and OSHA began enforcement on September 23, 2017. Old OSHA rules set a permissible exposure limit (PEL) for respirable crystalline silica for construction activity at 250 µg/m3 (micrograms per cubic meter of air). The new limit is a PEL of 50 µg/m3 with an action level of 25 µg/m3 for an eight-hour average exposure.

These values represent a significant reduction in allowable exposure limits; a variety of construction processes will have to change in order to comply. This means owners and other stakeholders can expect to see quite a few adjustments and line-item additions to their construction projects in the future.

Contractors will have the option of developing their own methods of dust control, but this would involve placing monitors on the employees and then testing the samples collected. Alternatively, contractors can comply with Table 1 found in the standard 29 CFR 1926.1153(c)(1).

As outlined in this prescriptive path, contractors must:

Provide devices that spray or otherwise deliver water to the point where a silica-containing substance is being cut. According to OSHA, “Wet cutting is the best way to reduce the amount of silica dust that becomes airborne during sawing because it controls exposure at its source.” There must be a continuous feed of water to the point of impact on the equipment. Alternatively, dust collection systems such as a HEPA-vacuum can be used to collect dust into a container.

Provide respirators when engineering controls such as water and dust controls are inadequate and during other activities as required per Table 1.

Develop a written exposure control plan, then review it annually, making changes if necessary. Written plans must describe all tasks involving exposure to silica as well as outline the specific strategies used to limit exposure for each task (i.e., equipment used or work practices implemented). The plan must also include the housekeeping measures used to limit silica exposure. Finally, OSHA requires “a description of the procedures used to restrict access to work areas, when necessary, to minimize the number of employees exposed to respirable crystalline silica and their level of exposure, including exposures generated by other employers or sole proprietors.” Contractors will be required to designate a competent person to implement the plan.

Provide medical evaluations and exams, per the new standard, for individuals wearing a respirator for 30 days or more each year.

Keep records of workers’ silica exposure and related medical treatment.

Train workers and supervisors on silica risks and how to limit exposures. The training must cover proper use and maintenance of equipment and controls as well as outline the medical surveillance procedures that are required by the rule.

To accomplish the above, contractors will be purchasing new machinery, tools and equipment; incurring costs associated with ongoing training and education, medical surveillance and recordkeeping; and making other investments. These costs will be factored into their bids. An early report commissioned by OSHA pointed out that the “initial impact is to force affected industries to purchase equipment, supplies, and services to implement the new regulations. They also might need to divert workers towards compliance activities, thereby reducing overall labor productivity for the industry.”

Contractors are also subject to fines. OSHA will assess fines of $12,675 per violation. If companies demonstrate a failure to abate, they will be assessed a fine of $12,675 per day beyond the abatement date. (Companies that have willful or repeated violations face fines of $126,749 per violation.)

Several industry groups have undertaken analyses to determine the annual cost of compliance; most are in the ball park of $4 billion to $5 billion. OSHA itself has estimated $1 billion per year and estimated that economic benefits would offset those costs.

Some experts on the new ruling have suggested that it qualifies as “disruptive,” just as certain technologies have come to be seen as disruptive. This is because it will drive changes across a broad range of goods-and-services providers. For example, tool companies have rolled out many new product lines that offer improved dust collection and disposal. OSHA’s requirement for increased employee monitoring is expected to incentivize companies to improve their adoption of technology, since digital filing and record-keeping is typically more efficient than paper-based filing.

Facility owners will feel the impact of the new OSHA regulations and must shoulder some of the responsibility for compliance. They will need to address the presence of silica in all stages of project planning, take appropriate precautions, and engage qualified contractors that have taken a proactive approach to dealing with the silica mandates.

Brian Gallagher is Vice President, Marketing, for O’Neal, Inc. O’Neal is an integrated design and construction firm based in Greenville, SC. Brian can be reached at bgallagher@onealinc.com or 864-551-0362  .

ABC Carolinas Construction Conference a Success

The Associated Builders and Contractors of the Carolinas (ABCC) recently held their annual Carolinas Construction Conference in Charleston, SC.  The event was held at the Charleston Doubletree and was attended by over 300 professionals from the construction industry.

Anirban Basu, Chairman and CEO of Sage Policy Group, addressed ABC Members at the Construction Conference.

“The Carolinas Construction Conference is the one and only conference in the Carolinas that brings the entire industry together,” said Doug Carlson, ABC Carolinas President & CEO. ABC’s conference offered speakers and programs on the economy, workforce development and seminars on construction-related business issues.

Anirban Basu, Chairman and CEO of Sage Policy Group, was the keynote speaker and he updated ABC members on key industry trends, markets and economics.

Ryan Wathen from Rodgers received ABC’s prestigious Kirby award.

The conference featured a Workforce Development Panel featuring Bill Caldwell, Waldrop Mechanical; Ryan Wathen, Rogers Builders; Greg Sizemore, ABC National; Steve Greene, NCCER; and Brian Gallagher, O’Neal, Inc.

In addition, ABC presented a series of awards.  Ryan Wathen from Rodgers Builders received ABC’s prestigious Kirby Award and Bill Caldwell of Waldrop received the Brokke Award for his contributions to ABC and the construction industry.

“Both Ryan and Bill have been outstanding leaders of the ABC of the Carolinas,” said Brian Gallagher, 2017 ABC Carolinas Chairman. “We were pleased to recognize and honor their service, dedication and commitment to ABC and the construction industry.”

On Wednesday, South Carolina Gubernatorial Candidate Catherine Templeton addressed ABC members.  Templeton has announced plans to challenge South Carolina Govern

Bill Caldwell of Waldrop received the Brokke award.

or Henry McMaster in the 2018 Republican primary election. South Carolina Congressman Mark Sanford joined ABC members for a PAC reception on Thursday evening.

ABC’s Construction Conference also featured a golf outing and fishing event. Wayne Colter of Colter Electric took home First Place from ABC’s Inshore Fishing Tournament at the Construction Conference in Charleston, SC. Second Place went to our youngest fisher ever, 9-year-old Reagan Lindholm, daughter of Ray Lindholm from Faulconer Construction.

ABC members heard from Catherine Templeton.

Conference attendees also participated in several breakout sessions focused on key industry topics. These included updates on tax law, AIA contracts, cyber security, and disruption and delay claims.

The conference concluded with a Meet the Generals networking event and a cocktail reception.

Positive News on the Construction Employment Front

According to a new press release from the Associated Builders and Contractors, the construction industry is on a positive trajectory as the industry gained jobs in September.

The construction industry rebounded in a meaningful way in September by gaining 23,000 net new jobs on a monthly basis after losing 5,000 net jobs in August, according to an analysis of U.S. Bureau of Labor Statistics data released today by ABC. Despite the broader industry gains, the nonresidential sector added just 2,700 net new jobs for the month, while the residential sector added 15,700 new


“Recent reports indicate that wage growth in America has accelerated significantly over the past year,” said ABC Chief Economist Anirban Basu. “Not only has this helped to support consumer spending, it appears to be inducing more people into America’s labor force. Despite recent job growth in construction and the balance of the economy last month, both industry and national unemployment rose. For operators of construction firms, this should be considered good news as survey data indicate that the lack of appropriately skilled labor represents the biggest concern for U.S. construction firms by far.

“Though construction added jobs in September, not every segment experienced increased hiring activity,” said Basu. “Driven by strong multifamily segments and an improving single family housing market, job growth in residential construction was robust. However, nonresidential employment growth was far less impressive, and nonresidential building construction actually declined. This may be part of an emerging pattern. The most recent Architecture Billings Index also revealed some nascent weakness in commercial construction activity. There may be many reasons for this, including seasonal fluctuations. However, there are also data indicating that credit available to commercial real estate is beginning to tighten up. It also remains difficult for many mixed use developers to line up enough office tenants to allow projects to move forward.

“All told, today’s data should be viewed favorably,” concluded Basu. “America’s consumer-led recovery continues to produce enough jobs to sustain itself, and chances of near-term recession remain quite low.”

The construction industry unemployment rate inched a tenth of a percentage point higher in September and now stands at 5.2 percent. The unemployment rate for all industries rose by the same amount, reaching an even 5 percent. This is likely attributable to the 444,000 new persons in the labor force. The labor force has expanded by roughly 2.1 million workers through the first three quarters of 2016. The last time the labor force grew that much through the first nine months of the year was 2000, the penultimate year of the dot-com bubble.

Read more about the construction employment report.

Celebrating Manufacturing Day 2016

Today America’s manufacturers celebrate Manufacturing Day 2016 (MFG DAY 2016). MFG DAY 2016 is a national event designed to build an interest in manufacturing careers among the future

workforce. While manufacturing has been experiencing a recovery, that recovery is threatened by a lack of skilled workers.

Manufacturing is critical to the American economy (See the infographic below). A critical component of manufacturing in the U.S. is workforce development. Today, we join with the manufacturing community in America to highlight careers and opportunities in manufacturing.

Finding and attracting skilled workers is a significant problem facing many manufacturers continue due to the lack of knowledge and understanding of manufacturing environments. MFG DAY was developed to address common misperceptions about manufacturing by giving manufacturers an opportunity to show the community opportunities in manufacturing. Manufacturers are working with the community, institutions and agencies to address the skilled labor shortage, connect with future generations, take charge of the public image of manufacturing, and ensure the ongoing prosperity of the manufacturing industry.

MFG DAY empowers manufacturers to come together to address their collective challenges so they can help their communities and future generations thrive. This year on October 7, 2016, the nation celebrates modern manufacturing and provides insight into opportunities, through experiences and hands-on events, to inspire the next generation of manufacturing workers.

Click here for more information on Manufacturing Day.

Clemson University to Host Construction Symposium

Clemson University has announced the first annual Construction Industry Symposium sponsored by the University’s Department of Construction Science and Management. Participants will gain valuable knowledge and perspective from leading experts about critical issues affecting the industry now and insight into anticipated changes.

“The Ever-changing World of Construction: Today’s Challenges, Tomorrow’s Opportunities,” offered by Clemson’s construction science and management department, is scheduled for Oct. 18 at Le Meridien Hotel in Charlotte, N.C.

The inaugural event is expected to draw attendees from across the region — facility owners, construction companies, specialty contractors, designers, vendors and other construction industry service providers.

“This centrally-located, regional event fills a void left by typical construction industry summits,” said Dr. Roger Liska, professor and chair of Clemson’s construction science and management department. "Our information-packed agenda offers a significant amount of construction industry-related ‘intelligence,’ presented and discussed by industry leaders in one place on one day."

“Attendees will leave with an arsenal of information to help them prepare their businesses for the challenging road ahead in the construction industry," Liska added. "Our long-range plan is for the symposium to become an annual event that people will look forward to every year. We also expect this to be a beneficial learning experience for students in our construction science and management program.”

Morning and afternoon keynote addresses will be followed by panel discussions, led by industry experts, on issues impacting the construction industry today with special focus on the future.

Anirban Basu, chief economist with Associated Builders and Contractors of Washington, D.C., will kick off the morning session with “The Economist Who Loved Me.”

James Benham, president of JBKnowledge Inc. of Bryan, Texas, will launch the afternoon session with “How Drones, Sensors and Integrated Apps are Rewriting All of the Rules in the Construction Industry.”

Bill Caldwell, president and CEO of Waldrop Mechanical Services and leader of the Corporate Partners task force, will moderate. Watch an interview with Bill Caldwell.

This new symposium was developed by Clemson’s construction science and management corporate partners and industry advisory board, with support from several leading construction industry associations.

Early registration discounts are available through Sept. 2. To register, visit the Clemson Marketplace.

Call for 2017 CIM Auction Donations

Companies Worldwide are Optimistic about Future Trade Activity with the U.S.

Global companies are positive about plans for future trade activity with the U.S., according to new research report entitled Terms of Trade: Understanding Trade Dynamics in the U.S. The research found that two-thirds of survey respondents (66%) anticipate that their company’s trade with the U.S. will increase over the next five years and more than four-in-ten (43%) expect an increase of more than 10%.

“The confidence in the United States as an exporter of products bodes well for manufacturing companies,” said Brian Gallagher, Director of Marketing, with O’Neal, Inc., an integrated design and construction firm. “While there will  be challenges with international trade,  there are increasing opportunities for U.S.-based manufacturers to export goods.”

The research, conducted by the Economist Intelligence Unit on behalf of American Express, is a survey of 531 executives at companies worldwide examining global trading relationships, looking at how companies trade, the challenges they face and how they expect international trade with the U.S. to change based on recent trends.

While opportunities for trade abound, international trade is not without difficulties. Companies trading with the U.S. face a number of challenges to navigate. Exchange-rate volatility, transport costs and delays, trade-related infrastructure and making payments were identified as their top challenges.

“Optimism about the outlook for global trade presents opportunities for U.S. businesses looking to export internationally,” said Guillermo Brenes, Vice President of Global Currency Solutions at American Express. “The survey shows that a number of the challenges to international trade are within the span of a company’s control, so there are practical ways in which companies can improve upon their own trade experience.”

Quality of U.S. Trade-related Infrastructure Ranks High

 Survey respondents gave high marks on the overall quality of trade-related infrastructure in the U.S. Over two-thirds of survey respondents (69%) rate the U.S. infrastructure as “very good” or “excellent,” and only 2% consider it to be “poor.” The trade-related infrastructure companies rely on most includes:

•    Digital communication technology (42%)
•    Port facilities (31%)
•    Road network (26%)
•    Cold transport and storage facilities (25%)
•    Warehousing (26%)
•    Rail network (16%)
•    Air links (13%)
•    Other specialized transport and storage (7%)

The findings are based on an executive survey of 531 companies that trade with the US, conducted by The EIU in March and April 2016, as well as desk research and interviews with experts.

Quality Lead Generation Key Priority for Marketers

According to Ascend2‘s 2016 State of Lead Generation Report, providing the sales team with high-quality leads is the highest priority for marketers. Improving the quality of leads generated is a top priority for 77% of marketing influencers. Lead generation was cited by 50% of the respondents as the second most important goal.

Ascend2's report indicated that the quality of leads handed-off to sales significantly impacts an organization’s ability to achieve the next most important goal of acquiring new customers.

Email marketing and content marketing were cited as the most effective tools for lead generation, as 45% of respondents cited each method. Content was cited as an important factor for social media and websites.

While challenges remain, the majority of marketers are optimistic about the future of lead generation activities. Eighty-nine percent of marketers believe the effectiveness of lead generation is increasing, while the remaining 11% continue to struggle with lead generation effectiveness.

An increasing number of firms are choosing to outsource their content. Eighty percent of organizations outsource all or part of their lead generation tactics. The more time and resource intensive a lead generation tactic the more likely an organization is to require outside assistance.

Access the full 2016 State of Lead Generation Report.

Focus on Marketing Metrics Increases

B2B marketers are increasingly becoming more comfortable with analytics tools and data as they track the Return on Investment (ROI) from their marketing activities, according to a new report entitled, 2016 State of B2B Marketing Metrics and Analytics from Regalix.

All the respondents Regalix contacted agreed that marketing analytics was important for their marketing success. 84% of them rated it as very important; the remaining 16% rated it as somewhat important.

Companies are Getting Better at Tracking Results

Comparison to last year, a larger number of marketers who said they were able to track the ROI of their investment in analytics with some degree of success; and the positive impact it seems to have had on their sales revenue.

As against 75% of respondents last year (Ref: State of B2B marketing metrics & analytics 2015), 86% of marketers who had invested in analytics this year said they were either very successful or somewhat successful in tracking the ROI of their investment in analytics; and only 14% of respondents said they failed in tracking ROI in comparison to 25% last year.

My experience has been that tracking activities leads to better performance. The report found that
29 % of respondents said marketing analytics has helped increase their organization’s sales revenue by over 26%, in comparison to only 17% who said so last year.

Better Tracking Improves Allocation

Survey respondents also indicated that tracking activities also helps with the allocation of marketing resources. The report indicated identifying marketing channels that provide the most ROI (79%) tops the list of key benefits pursued by marketers in analytics, followed by the benefit, helps in allocating marketing spends more effectively (68%).

Access 2016 State of B2B Marketing Metrics and Analytics Report
.

Steady Growth in Construction for 2016 Forecasted by FMI

Activity in the construction industry is expected to grow 6% for 2016, according to FMI, a Raleigh, NC-based construction consulting company. FMI adjusted total residential down a bit and nonresidential construction up. The largest growth markets are lodging (14%), office (11%) and commercial (8%); together these three markets represent 33% of nonresidential buildings for 2016.With the exception of commercial construction, all are strong markets but growing slower than in 2015.

FMI’s Second Quarter Nonresidential Construction Index (NRCI) report supported these growth trends. FMI surveyed construction executives via the NRCI survey. These executives increased their optimism to drive the total NRCI Index score from 55.6 in the first quarter to 61.3 in the second quarter.

“Despite all the distractions (Fed rates, oil prices, China, Brexit, terrorism), the construction industry continues to plod along undeterred at a growth rate of 6%," said Randy Giggard, FMI’s Manager, Marketing Information.  "The prudent among us will keep watch for signs of the next recession.  But at this time, it seems most likely that the industry will continue to expand for at least another 18 months.”

Current conditions are looking good for the construction industry:

• Interest rates remain relatively low for borrowers building homes and commercial projects.
• Unemployment remains low, so more people have jobs and are spending money—on the other hand, low unemployment translates into higher wages and difficulties finding workers.
• The consumer price index (CPI) shows little sign of inflation. Oil and energy prices also remain low. The numbers lead us to expect continued growth that could be sustained for several years.

Despite the growth projects, there are still some under lying tension in the market. Oil and gas producers mostly need higher prices to keep people employed and make a profit. This is especially true for those countries that derive most of the country’s income from oil and gas production. The Federal Reserve has been looking for an opportunity to raise interest rates to encourage banks to lend and savers to save, but wages have not shown much sign of rising rapidly for the working class although unemployment remains below 5%. Even though current conditions are mostly good, we can see there is tension in the economy and wonder what changes will come in the summer.

Read more about the FMI Construction Forecast.

(Source Material from FMI)

Leave it to the Marketers

Marketing for an architecture/Engineering/Construction (AEC) company can be both exciting and challenging. The industry presents opportunities to work on unique and creative projects, while presenting changes to those that work in marketing roles.

In No, Everyone's  Not a Marketer, Scott Butcher, Vice President and CMO of JDB Engineering, addresses some common challenges faced by marketers in the AEC industry. Butcher's blog, which appeared in ENR's Metropolis, outlines common themes all too familiar to marketers in AEC firms.

He address the fact that technical professionals generally think they know more about marketing than marketers. Technical professionals, while critical to the marketing process, might not be the best to lead or executive marketing efforts. Butcher writes: "(technical professionals) are critical to it. But many people in these positions have a limited understanding of marketing messaging, value proposition development, brochure and website design, public relations, market research, and the many other disciplines of marketing."

Butcher asserts that AEC firms needs to trust and empower their marketing professionals and let them do the jobs they were hired to do. I couldn't agree more.

Read the Marketropolis Blog

ABC Carolinas Construction Conference to be held in Greenville, SC

The Associated Builders and Contractors (ABC) of the Carolinas will host its 2016 Carolinas Construction Conference this month in downtown Greenville. The annual regional event will be held at the Hyatt Regency Greenville, and will feature exciting programs, events and speakers. The conference kicks off on Thursday evening, August 11, and wraps up Saturday night, August 13.

Each year, the leaders of construction-related businesses from across South Carolina and North Carolina come together at the ABC Carolinas Construction Conference. This year’s theme, “Built on Merit, Driven by Passion,” sets the tone for the conference’s programs. The 2016 ABC Carolinas Construction Conference is sponsored by Sears Contract, Inc.

“ABC is excited to host our annual Construction Conference in downtown Greenville this year and look forward to showcase the city,” said Doug Carlson, president and CEO of ABC Carolinas. “ABC is the construction association of choice and many of our member companies have worked on the revitalization of Greenville's downtown area.  We are pleased to hear about the plans for continued growth.”

 

Conference Speakers include:

·         Greenville Mayor Knox White

·         Sam Wyche, former coach of the Cincinnati Bengals

·         Mike Chibbaro, Battlefield Leadership

·         Alex Miller, FMI

·         Brad Humphrey, Pinnacle Development Group

 

Special events and activities include:

·         BMW Driving Experience and Performance Center Events

·         Golf Outing

·         PAC Reception

·         Casino Night

·         Vendor Showcase

 

"We have created a conference program that will provide knowledge, insight, and tools that the leaders of the construction industry can use to impact the productivity and profitability of their businesses,” said Brian Gallagher, marketing director for Greenville-based O'Neal, Inc. and ABC Carolinas Board Member.

 

To learn more about the conference or to register, please visit www.abccarolinas.com for more details.

IndustryWeek Top 500 Manufacturing Lists

Each year, IndustryWeek magazine publishes its Top IW 500 Manufacturing companies, industries and states lists. IndustryWeek’s company list is a ranking of the largest public manufacturers based on revenue. The IW 500 state list looks at the U.S. states with the most revenue from IW500 companies. In addition, IndustryWeek reveals the industries and companies that drive manufacturing in each state.

California surged ahead of Texas, 64 companies to 55. By revenue, the biggest manufacturers in California together contributed $881 billion to the state’s coffers, while the biggest in Texas contributed $847 billion. Last year, the two states were tied with 61 IW U.S. 500 companies each last year.

Once again big oil, computer/electronics, and chemicals industries finish far ahead of the other industries, with 62, 57 and 52 companies making the IW U.S. 500 list. Machinery finished fourth, with 39 companies, and food industries, fifth, with 27 companies.

As for companies, ExxonMobil topped the IW 500 with revenue of $268.86 billion. Apple came in a distant second.

Read More

Automation Investment in U.S. Manufacturing

According to a new study on factory automation in the U.S. by MAPI, the Manufacturing Alliance, U.S. manufacturers looking to automation to reduce costs and increase throughput, and a combination of forces is driving companies to take that even higher both in recent years and those ahead.
The report, Automation Investment in U.S. Manufacturing: An Empirical Picture, was written by Cliff Waldman, Director of Economic Studies at MAPI, and sponsored by Rockwell Automation.  The report is based on survey responses from U.S. manufacturers.

“Automation implementation exhibits characteristics of both capital investment and innovation investment,” observes Waldman. “While deploying machinery into a production line has characteristics of capital equipment investment, it does not appear to be as short-term oriented as capital investment.”

The results show a high incidence of actual and planned automation investment in U.S. manufacturing, both in total and spanning a wide range of company size groupings and industries. Data on the drivers of investment and the company evaluation criteria for assessing the benefits of new automation capital suggest a possible spreading effect across supply chains and industries as the need for globally competitive production costs and product quality becomes increasingly intense.
Capital investment in automation is being driven by productivity and quality improvements.

“Automation also does not appear to be an element of business expansion.,” Waldman added, “Rather, it is more like process innovation whose principal goals are cost reduction and product quality improvement.”

Major findings include:

1. The incidence of actual and planned automation investment is very high in the U.S. manufacturing sector. The high incidence spans across company size and industry cohorts.

2. The most prevalent of a wide range of criteria used by survey respondents to evaluate the performance of new automation technologies is whether they lower total production costs, evidence that increased global manufacturing integration is raising the pressure for automation investment as cost competition looms ever larger as a U.S. manufacturing company operating incentive.

3. The survey shows that both costs and product quality are pressured, a difficult problem even in the context of lean supply chains, as quality escalation can add to the cost of production. For any manufacturer, particularly a larger one with significant global exposure, this likely means that the initial automation implementation is just the beginning of a journey. Automation will be an ongoing concern and part of a broader complex of evolutionary, and in some cases revolutionary, operating changes.

4. Those that have recently engaged in or plan to engage in automation as a stand-alone investment are likely at the beginning of this post-lean automation adoption journey, while those that have automated and/or plan to automate as part of a broader effort with company technological infrastructure are likely further along in their technological transformations. Given the split in the respondent pool along these lines, it seems that there is currently a wide range of advancements along the technology adaptation curve in the U.S. manufacturing population.

5. The survey reveals a remarkably high incidence of automation in the cohort of very small manufacturers that likely comes from supply chain pressures and can be said to be further evidence of the spreading of automation suggested by the fact that customer, supplier, and competitor use were noted by respondents as primary drivers of automation investment.

6. By allowing for efficiencies in at least some kinds of production, the supply of new automation capital makes it easier for manufacturing entrepreneurs to overcome the often significant barriers to entry in goods-producing markets and for marginal small manufacturing companies that might otherwise have exited the market to stay and compete.

7. While external forces are catalyzing widespread automation activity in U.S. manufacturing, internal company concerns are acting as something of a break. As the survey shows, labor force issues are among the potential impediments. Human capital challenges, including the difficulty of finding and retaining computer-literate production workers, certainly show themselves to be a cost of automation if nothing else because they slow the full implementation of automation capital into the goods-producing process. But given the overwhelming incidence of automation investment, both planned and actual, in our national survey of manufacturing companies that span a wide range of company sizes and industries, it seems clear that cost and performance pressures are by and large trumping workforce and other internal impediments in the automation decision function.

8. If smaller companies that are holding out on automation investment because of cost considerations continue to do so, they will be at a competitive disadvantage in any supply chain that affects their current or future profitability.

9. While stratifications do not reveal an industry bias in automation investment per se, stratifications by share of companies that engaged in automation investment as part of a broader effort with their technology did reveal a distinctly higher incidence in computers and transportation equipment, two of the relatively higher-productivity sub-sectors.

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Revitalizing U.S. Manufacturing

From 2000-2010, the U.S. lost nearly a third of its manufacturing workforce as the plants closed and manufacturing moved overseas. However, in recent years, manufacturing employment has increased as several industries rebounded and domestic plants have become more cost-competitive. In an article in the Wall Street Journal, author Bob Tita identifies nine policies to spark growth and revitalize U.S. manufacturing.

Business and political leaders are advocating strategies to accelerate job gains and attract investment in manufacturing. Their ideas range from reducing regulations to imposing a value-added tax on imports to fund manufacturing training programs. In “How to Revitalize U.S. Manufacturing,” Tita identifies these nine policies:

• Making exports more valuable
• Introducing a Value-Added Tax (VAT)
• Deal with an overvalued currency
• Look at the true cost of offshoring
• Purge duplicate regulations
• Look at more than jobs
• Turn community colleges into career factories
• Spend more on manufacturing R&D
• Create regional centers of expertise

Manufacturing is a significant generator of wealth for an economy, since it requires processes, materials and work skills that create employment and profits at each step in an assembly. While there are many positives in the industry, focusing on strategies to attract manufacturing investment and create jobs are critical.

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Foreign Direct Investment on the Rise

According to the 2016 Foreign Direct Investment (FDI) Confidence Index® A.T. Kearney, nearly three-quarters of companies plan to increase their FDI in the next three years. The 2016 edition of the Index, FDI on the Rebound?,finds that global business executives are increasingly looking to deploy FDI for growth opportunities. More than 70 percent of firms in the survey plan to increase their level of FDI over the next three years.

For the fourth consecutive year, the United States tops the FDI Confidence Index. Global business executives are also more bullish on the U.S. economic outlook than for any other economy. China was second also for the fourth consecutive year.

“The United States and China have held steady at the top of the Index in the face of significant changes in the global operating environment over the past four years,” says Paul Laudicina, founder of the FDI Confidence Index and chairman of A.T. Kearney’s Global Business Policy Council. “Executives’ sustained interest in investing in the United States and China demonstrates the undeniable and enduring attractiveness of the two largest economies in the world. Over the 18 years of this assessment we have observed consistent investor preference for large markets with robust economic prospects.”

FDI in the United States has been a key driver in the recent manufacturing recovery. Capital investment in automotive, chemical, textile, aerospace and other manufacturing and production facilities by foreign-owned companies has been on a steady increase in the United States.
While reshoring activity accounts for a portion of this investment, the upsurge that may be most beneficial is how investments are being redirected based on the new economics of manufacturing in the United States. According to the Organization for International Investment (OFII), it is insourcing, or foreign direct investment (FDI) in the United States, that truly bolsters U.S. manufacturing. The OFII’s Foreign Direct Investment in the United States 2014 Report showed that in 2013, manufacturing accounted for one-third of cumulative FDI, in an amount exceeding $900 billion.

Last month, the Reshoring Initiative released its 2015 Reshoring Report. The report indicated the flow of job loss has been stemmed, but challenges remain to bringing back the millions of manufacturing jobs previously lost to offshore. The combined reshoring and FDI trends remained strong in 2015, adding 67,000 jobs and bringing the total number of manufacturing jobs brought from offshore to more than 249,000 since the manufacturing employment low of February 2010. Combined, these trends are leading to capital investment in manufacturing facilities.

The Global Supply Chain Institute at the University of Tennessee conducted a study on outsourcing and global supply chains and reported that companies are adopting regional supply chain models. This has a trickle-down effect, as once a large manufacturer makes a capital investment, key companies that are part of their supply chain may also make a capital investment. The aerospace and automotive industries are recently examples of this trend.

Global business leaders are increasingly turning to FDI to ignite growth opportunities, despite the overall trend of slowing globalization. Global FDI flows jumped 36 percent to an estimated $1.7 trillion in 2015—the highest level since 2007—and the vast majority of executives also believe that FDI will become more important for corporate profitability and competitiveness in the near term.
These trends from the large U.S. market are attractive to many corporations overseas because companies are increasingly making their products in multiple stages from supply networks in many countries that are linked together by trade and investment. Some other attractive and key advantages that provide incentive to FDI are: proximity to markets, dependable infrastructure, training and education, and business-friendly regulatory environments.

“We are seeing a continued flight to safety in the primary destinations for FDI,” says Erik Peterson, managing director of the Global Business Policy Council and co-author of the study. “It is not hard to understand why. The profound uncertainty in the economic prospects of many large emerging markets is causing investors to turn their attention to developed markets in North America and Europe.”

Corporate Executives Indicate Increased Capital Investment in Facilities

Each year for the last 30 years, Area Development has conducted an annual survey of corporate executives to assess their plans to open, expand or relocate facilities. According to the 2016 Annual Corporate Survey, new facility and expansion plans are up slightly on a year-over-year basis as nearly half the respondents believe the U.S. economy is on a continuous growth track.

“The Area Development report confirms the feedback we have been getting from our clients,” said Brian Gallagher, Director of Marketing for O’Neal, Inc., an integrated design and construction firm. “A number of our clients are moving forward with their capital investment plans to add new manufacturing capacity based on their confidence in the economy.”

Forty-nine percent of respondents to the Corporate Survey indicated that they plan to open new facilities within the next five years (a 3 percent increase over the 2015 survey). Of those firms, 87 percent say these facilities will be in the U.S., and just a quarter plan on locating these new facilities in a foreign location. More than half of these new facilities will be in a southern region of the U.S. — 17 percent of the total planned projects are slated for the South; 16 percent for the Southwest; 13 percent for the South Atlantic; and 9 percent for the Mid-South.

Area Development conducts the Annual Corporate Survey to assess their reader’s take on the economy as revealed by their location and expansion plans and site selection priorities.

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Construction Growth Forecasted for 2016

According to a recent forecast by FMI, a consulting group specializing in the engineering and construction industry, construction activity will continue to grow in 2016. FMI reported that construction put in place will slow to a 6% growth rate in 2016.

In 2015, construction added 11% growth to reach nearly $1.1 billion in construction put in place since 2008.  Signs that the rate of growth for the industry is slowing reduced the forecast for 2016; however, construction put in place will reach $1.6 billion.

The increase in construction activity has also spurred growth in construction employment. The U.S. construction industry added 37,000 net new jobs in March 2016 according to an analysis of  the recent  U.S. Bureau of Labor Statistics release by Associated Builders and Contractors (ABC). On a year-over-year basis, construction employment expanded by 301,000 net new jobs, the industry’s largest annual increase since May 2015.  

“Naturally, consumer spending-led recoveries such as this more directly impact residential construction segments than nonresidential," said ABC’s Chief Economist Anirban Basu. "Accordingly, the residential construction recovery continues to be a bit more forceful and that is likely to continue during the months ahead.”

Improving consumer economic and physical health and a growing population demanding new technologies and housing are contributing to the forecast of projected growth.. Those consumers, especially younger consumers are also highly mobile and gravitating most often toward larger cities for jobs and entertainment. With all the good news for construction markets, FMI notes that it must also echo the sentiments of the Federal Reserve and say: "Global economic and financial developments continue to pose risks,"

FMI recommends cautious optimism for 2016 and offers these forecasts for some key sectors:

• Manufacturing – Manufacturing construction took a heavy hit during the Great Recession, but it has more than caught up as of 2015, with a whopping growth of 44% for the year and a more modest 9% growth expected for 2016. In either case, new records are being set for manufacturing construction investment. While, at 76.1 for February 2016, manufacturing capacity utilization is still below the long-term average of 78.5, there are signs that new capacity is being well utilized. 
• Residential Construction  – FMI forecast residential construction will grow at a rate of 6% for 2016, with the largest rate of growth in multifamily housing (12%). Compared to 2015, growth will be cut by more than half. There are signs that some of the slower growth is due to homebuilders—like most all contractors—having difficulties fnding qualifed labor, thus needing to increase wages to attract more workers.
• Lodging – Lodging construction continued to rise above even increasingly optimistic forecasts for 2015 to end the year with 31% growth. At this point, FMI again expects the rate of growth to cool, but, at 15% for 2016, it will still be the fastest-growing construction market. With an expected value of $24.3 billion for 2016, this market is well below its high of $35.8 billion in 2008, but we expect these numbers to be more sustainable with a mix of new venues and refurbishing established locations.
  Office – After a strong show of growth in 2015 (22%), we expect office construction to cool in 2016 to a still respectable rate of 9% growth. Much of the growth has come from an increase in employment, especially in high-tech job markets. These high growth rates will taper off to more sustainable rates in 2017 and beyond. Continued growth in the technical sector and in larger metropolitan areas like New York City will keep rents and absorption of new space high.
  Power – After a strong year in 2014, power construction declined sharply in 2015, losing 14%. FMI expects another 4% drop in 2016, thus giving up the gains realized since 2012. The power industry is in flux due to changing fuel supplies using more natural gas and less coal as well as variable rates of growth in alternative energy sources like solar and wind. Power plants must be updated to keep up with changing requirements as well as to manage distributed generation sources. Despite losing subsidies and the lower cost of oil and gas, wind and solar power generation facilities are growing. The power industry will continue to consolidate as the average consumer reduces power use, but growth will slow in 2016 and 2017.

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