There’s plenty of building to be done in 2016, and construction firms throughout the United States are prepared to grow the sector’s workforce to meet the demand.

According to survey results from the Associated General Contractors’ (AGC) annual industry hiring and business outlook, 71 percent of construction firms plan to expand their payrolls in 2016 as contractors expect both public and private markets to grow. However, whether firms are able to tackle key challenges such as a shortage in skilled labor, regulatory burdens and technology concerns successfully remains to be seen.

2016 Construction Outlook Survey Results [Associated General Contractors of America]

“[T]he industry faces a number of challenges that have the potential to dampen, and possibly even undermine, the sector’s recovery,” AGC chief executive officer Stephen E. Sandherr said on a media conference call last week. “… In other words, 2016 won’t be easy, but [it] should definitely be a good year for many construction firms.”

More than 60 percent of firms plan to increase their total headcount between 1 and 25 percent, while 8 percent report they will expand their headcount by more than 25 percent this year. Among the 30 states with large enough survey sample sizes, 95 percent of firms in Kansas plan to expand their payrolls in 2016, more than in any other state. Meanwhile, 25 percent of firms in Pennsylvania plan to reduce headcount this year, the most of any state.

Sector-wise, respondents are most optimistic about the outlook for retail, warehouse and lodging (21 percent net positive). Net positive reading is the percentage of respondents who expect a market segment to expand versus the percentage who expect it to contract.

Respondents were also positive about the outlook for hospital (19 percent net positive), private office (19 percent), multifamily residential (14 percent) and higher education (13 percent) construction. “They are also optimistic about the prospects for K-12 school (12 percent) and public building (12 percent) construction, particularly in contrast to last year when contractors were generally pessimistic about all public construction market segments,” said AGC chief economist Ken Simonson.

By region, contractors in the Northeast are most optimistic about multifamily construction (27 percent net positive), while Midwest firms are more hopeful about retail, warehouse and lodging (17 percent). Contractors in the South see hospital construction (25 percent) as the best prospect, and firms in the West are most optimistic about the private office market (28 percent net).

Positives aside, construction firms continue to deal with shortages of available workers. Seventy percent of firms report they are having a hard time finding either salaried or craft professionals. Sixty-nine percent of respondents predict labor conditions will remain tight, or get worse, during the next 12 months.

Firms are responding to worker shortages by increasing pay and/or benefits, according to the survey. Forty-nine percent of respondents report they have increased base pay rates, 30 percent report they are providing incentives and/or bonuses and 23 percent report they have increased contributions to employee benefits to retain or recruit workers. Nearly half of firms report they plan to increase their investments in training and development compared to last year.

“What is particularly striking about the findings on worker shortages is that they are consistent with the responses from last year’s outlook,” said Simonson. “In other words, after a year of raising pay and increasing benefits, contractors remain as worried about the lack of qualified workers as they were at the beginning of 2015.”

Seventy-nine percent of firms report the cost of providing healthcare for their employees increased in 2015, while another 81 percent expect their healthcare costs will increase in 2016. Even as firms spend more on healthcare coverage, they are prepared to increase investments in information technology (IT).

“Beyond economic and IT challenges, contractors also must cope with the impact of decisions made by federal, state and local officials,” said Sandherr. “In particular, many contractors are worried about the continued, and seemingly more rapid, expansion in the number and scope of federal, state and local regulations.”

Thirty-nine percent of contractors report they are worried about the continued expansion of federal regulations and their impact on businesses. Thirty-four percent report they are worried about the growth in state and local regulations.

Nineteen percent of contractors cited the lack of cooperation from federal regulators as a major safety concern, while another 40 percent said it was a minor concern.

The survey was conducted with Sage Construction and Real Estate. Sage vice president and general manager Jon Witty was also on the call and focused on IT challenges. (Stay tuned to USGNN.com™ next week for more coverage.)

The outlook was based on survey results from over 1,500 construction firms from all 50 states and the District of Columbia.