Market Trends October 2019

Construction Labor Shortage
The US has been short of workers in the construction industry since the Great Recession, which began in 2008. The construction industry lost approximately 1.5 million jobs during the Great Recession and has not yet gained them back. The JOLTS report shows that construction is still short about 350,000 workers, with the shortage of skilled labor growing more challenging as the economic expansion continues.
 
NAHB Chief Economist Robert Dietz says the construction industry is suffering from a shortage of the Five Ls: lack of labor, lack of lots, lack of lending for builders and land developers, lumber and materials issues and law issues. This has created a housing deficit, which in turn has created a shortage of inventory and home prices that are rising faster than incomes and inflation. There is a chronic shortage of single-family homes and apartments, with supply running well behind demand. Part of the problem is the aging existing workforce, which took a big hit during the Great Recession. Many people who left the industry to find work have retired, or never returned. The many issues contributing to the shortage make it challenging to address. Dietz says, “there is no silver bullet.”
 
NAHB surveys of young adults ages 18 to 25 show that construction is not high on their list of desirable occupations. They want jobs that are less seasonal, less physical and involve computers and digital technology.
 
Changes in immigration policy that have slowed immigration have also affected the labor force; out of all major occupations, construction has the highest number of foreign-born workers. The opioid crisis is also creating problems and impacting the labor force. A study from the Cleveland Fed concluded that prescription opioids can account for 44% of the decrease in men’s participation in the labor force and a 17% decline in women’s between 2001 and 2015.
 
It takes 8 to 12 years for a craft professional to be fully trained and become truly competent. The research report “Construction Industry Training in the US & Canada” found that a 1% investment in labor training increased productivity by 11% and decreased turnover 14%, absenteeism 15%, injury 27% and rework 25%. The numbers prove that the benefits of training far outweigh any cost in time and money.
 
Pay Going Up for Construction Staff
Survey respondents predict increases of about 3.5% - 4% in construction staff payrolls both this year and next year, according to the annual compensation survey by Personnel Administration Services. Overall salary increases have averaged 3.7% in three of the last four years. Experienced superintendents are in demand, as they are considered key to getting projects completed on time and on budget. Benefits are also very important, with more candidates considering the ability to balance work and life by cutting commuting time or getting more time off or other family benefits equally important.
 
Drones Aid Construction
Advances in artificial intelligence and the chronic shortage of labor have construction companies scrambling to find alternatives to the traditional laborer, according to a recent article in the Arizona Daily Star. Job titles such as robotics technician and virtual construction supervisor are now listed on recruiting sites. The University of Arizona is planning to add classes in these areas to their civil engineering program. Tucson-based Sundt Construction has 15 drones working in fleets across Arizona, Texas and California that capture photo documentation and mapping data. SAM, an acronym for semi-automated mason, is a brick-laying robot that can lay up to 350 bricks an hour, much faster than human. Augmented robotics in exoskeletons can be worn by construction workers to improve strength and lessen wear and tear on their bodies from physical labor. Drones can map a site in 30 minutes; another hour of data crunching on the computer shows where pipes and infrastructure should be placed. Once the exterior of a building is completed, drones can use thermal cameras to measure temperatures in the building and identify spots where there might be excessive heating or cooling escaping the building before clients occupy it.
 
Autodesk University User Conference
By 2050 the global construction industry will need to produce an estimated 14,700 buildings every day just to support the world’s growing population. That massive challenge is also a massive opportunity, and tools that analyze data and manage complex jobsites will play a growing role in construction, according to Autodesk, which produces a variety of BIM (Building Information Management) software. Contractors say that switching to data-driven project management requires a big commitment; many contractors collect and record a wealth of project data, but don’t really use it for analysis. Royal BAM, a contractor in the Netherlands converted to digitized data in 2017 and says that digitizing 95% of project data points has helped them achieve a 20% improvement in quality and safety and also allow them to spend 25% more time focusing on tasks and “risk items.” The rise of prefabrication is also impacting construction, with on-site assembly of prefabricated components speeding up project timetables by as much as 30% while also requiring up to 50% fewer on-site workers.
 
Sustainable Startups
More than 400 young entrepreneurs applied to be part of Target’s incubator program focused on Gen Z entrepreneurs. Since the program began in 2013 Target has had four accelerator programs that have run 13 boot camps for more than 100 startups. Although the companies given the opportunity to participate are diverse, several of this year’s winners have one thing in common: they are focused on sustainability. Startup Tarravive wants to make compostable straw, cups and cutlery out of crop scrap. Another startup is focused on turning harvests that would otherwise go to waste into dried fruits, and Pulp Pantry is making chips out of leftover juice pulp. There’s also one working on creating an online marketplace for female artists making sustainable fashions around the world. Each company selected gets $10,000 in seed money and gets to go to seven weeks of boot camp. Several products that have come out of the incubator have been tested at Target, and some are on shelves now.
 
Home Depot’s Path to Success  
Carol Tome, the CFO of Home Depot since 2001, retired at the end of August. She played a key role in helping the company turn sales around and crafting a retail strategy that helped THD become a real retail powerhouse. In 2014 she was one of three candidates in serious contention to succeed Frank Blake as CEO. Ultimately Craig Menear got the nod, but Tome stayed on as CFO. She’ll be succeeded by Richard McPhail, whom she has helped to groom for the role over many years. In a recent interview with the Wall Street Journal, Tome reflected on Home Depot’s growth and the challenges that lie ahead. She recommended they sell HD supply and get back to focusing on the core business. They had to exit businesses, close stores and take new stores out of the pipeline. She found it personally stressful to have to tell associates at stores that were closing they were out of a job; it made her vow never to allocate capital to a store that needed to be closed or a business that needed to be sold. When she started with Home Depot, there were 75,000 households per home improvement store. By the time the Great Recession hit, there were just 33,000 to 35,000 households; the market was getting saturated. They had to prove they could survive the recession and outperform their competitors. Her advice to CFOs dealing with tough situation was to be businesspeople first and finance people second; you have to be able to speak the language of the business, figure out what motivates people and how to be an inspirational leader, not a numbers cruncher. She also noted that the role of a great CFO is to be a partner; to debate tactics and strategies from a factual basis, but once the play is called, get behind it and run it full out.
 
Who’s Liable for Defective Goods Sold Online?
There is a potentially precedent-setting case in Pennsylvania that could determine that retailers who sell goods through an online marketplace are liable for defective goods. A three-judge panel of the 3rd US Court of Appeals reinstated a suit by Heather Oberdorf that had been dismissed by the Middle District Court. She sued Amazon over an allegedly defective dog collar she bought online. She was seeking damages for injuries, including the loss of sight in one eye suffered while walking her dog on a retractable leash that broke and subsequently hit her in the face. After the incident neither the victim nor Amazon was able to locate the vendor; the lower court dismissed her suit, but the Appeals Court found that Amazon can indeed be sued for product liability because Amazon has substantial control over the vendors who sell on their website. No news yet on how Amazon intends to respond.

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