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1999 Construction & Equipment Forecast

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1999 Construction & Equipment Forecast
March 8, 1999

Contractors face another tough year finding labor

By JERRY CRAIG
Journal City Editor

The construction labor market in the Central Puget Sound region will continue to tighten this year but conditions should ease up heading into next year, according to labor and construction industry experts.

"This will be a very tight year, particularly in King County," said Jim Hebert of Hebert Research who tracks the labor market by comparing the number of workers filing for unemployment claims to the total workforce.

One result of a constricted labor market is rising wages and Hebert is forecasting a dramatic 6.2 percent increase in labor costs this year, compared to last year's 5.5 percent increase. The annual increase has averaged 4.7 percent over the past five years.

Statewide, Hebert predicts a 6.1 percent increase in labor costs this year, with labor conditions tight in areas such as Spokane and Walla Walla. Paul Irby, research analyst for Hebert, says workers are being drawn to the Puget Sound area from other parts of the state because of the high volume of construction activity there.

"The labor market [in Eastern Washington] is a little tighter. We're competing hard for workers," said Hank Stamschror, president of the Associated General Contractors of Washington who heads Mountain States Construction of Sunnyside. "There's been a downturn in the agricultural industry but commercial work is still doing okay."

1999 Northwest Construction Forecast

  • The majority of firms forecast an increase in their 1999 construction backlog in Washington State.

  • The majority of firms forecast that construction backlog in Oregon will remain at 1998 levels or slightly increase in 1999.

  • Markets predicted to remain active in Pacific Northwest construction are:
    • Commercial building
    • Heavy civil
    • Transportation
    • Environmental
    • Bio-tech
    • Light Industrial

  • Markets predicted to decline from previous levels are:

    • High-tech
    • Marine
    • Manufacturing
    • Pulp & paper

  • 65% of firms indicate that staff size will increase in 1999 with an additional 30 percent indicating staff size will remain at 1998 highs.

  • 1999 wage increases for salaried staff are predicted to range from 3 percent to 4 percent.

    Source: Northwest Construction Consumer Council

  • For the Portland metropolitan area, Hebert is forecasting a modest 3.5 percent increase in labor costs.

    Hebert states that the scarce labor picture in Central Puget Sound is having an impact on the volume of construction activity.

    "Lots of construction projects are being delayed until the labor situation stabilizes," he said. Such a stabilization could occur next year, Hebert predicts, as construction volume lessens somewhat. "We're already seeing companies downsizing, which I believe will affect the office market."

    "On the other hand, Sound Transit's $2 billion light rail construction program could keep civil works contractors busy for the next five or six years," says Hebert. And he adds that the building industry would benefit if the massive transportation project spurs associated commercial and residential development.

    Other construction industry officials aren't sure what impact the tight labor market has had on the overall construction picture.

    "There's not a lot people in the [union] hiring halls," said Doug Peterson, director of labor relations for the AGC of Washington. "And it's a concern for contractors." But Peterson says he isn't convinced the labor situation is delaying or killing projects. They're managing to bring people in from other areas.

    Peterson points out union labor contracts help stabilize wages in boom times, although he notes that certain trades such as bricklayers and electricians received big wage hikes last year.

    "Labor is tight but available," said Bob Beebe, senior project manager and partner with GLY Construction of Bellevue, a general contractor specializing in large office, industrial and retail projects. Beebe says contractors are noticing shortages in certain trades such as masons and glazers. But overall, says Beebe, the labor market has softened somewhat from last year's hectic June-September peak and he anticipates a slightly less active construction season this year.

    Recently, a Canadian development company announced it was canceling plans for a major condominium complex in downtown Bellevue because of the area's scarce labor and high construction costs.

    But Beebe questions whether the labor situation alone would be enough to kill a project. Labor shortages are still several tiers down from financing in factors determining whether a project goes ahead.

    Chris Clark, president of W. G. Clark Construction, says his company is also able to meet its labor needs. "As an open-shop contractor, the labor market is infinite," he said.

    Clark's company, which specializes in urban multi-family and commercial development, draws a lot of its workers from the residential, light-commercial labor pool. "We attract a lot of good people because of our outstanding retirement benefits," said Clark.

    But Clark admits that labor costs have increased significantly the past few years. Subcontractors tell him they have to pay as much as 50 percent more for certain trades than they did a few years ago.

    Open-shop contractors, says Clark, have to pay more in tight-labor situations because they don't have the labor contracts to stabilize wages.

    Because of the hot Seattle housing market, Clark says high construction costs haven't killed many projects. "Rents have moved up nicely so projects are still doable."

    Labor unions are enjoying the worker shortage, according to Mike Jonas, vice president of the International Union of Operating Engineers, Local 302. "It's a great opportunity for us," said Jonas. "We predicted this shortage years ago."

    Jonas observes that his union's workers, who operate heavy construction equipment, are now busy throughout the year instead of just during the peak construction period.

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