Contractors are optimistic that the industry’s economic outlook in 2018 will remain strong as tax rates and regulatory burdens fall, according to survey results released by the Associated General Contractors of America (AGC of America) and Sage Construction and Real Estate.

However, many firms report they remain worried about workforce shortages and infrastructure funding.

“Construction firms appear to be very optimistic about 2018 as they expect demand for all types of construction services to continue to expand,” says Stephen Sandherr, chief executive officer of AGC of America. “This optimism is likely based on current economic conditions, an increasingly business-friendly regulatory environment and expectations the Trump administration will boost infrastructure investments.”

Respondents are very optimistic about demand for all types of construction services as measured by the net positive reading – the percentage of respondents who expect a market segment to expand versus the percentage who expect a market segment to contract. The net positive reading for all types of construction is 44 percent, the highest yet recorded in the association’s outlook survey series.

Broken down by market segment, contractors nationwide are most optimistic about the private office market segment, with a 22 percent net positive reading.

Respondents were only slightly less optimistic about growing demand in other segments. There is a 16 percent net positive for both multifamily residential and public building segments.

Association officials noted that 75 percent of firms say they will increase their headcount in 2018, up slightly from 73 percent last year. Most of the hiring will only expand headcounts by a slight percentage per firm, however. Half of firms report their expansion plans will only increase the size of their firm by 10 percent or less. Meanwhile, only 5 percent of firms report plans to expand their headcount by more than 25 percent above their current size. Only 3 percent of respondents expect to reduce headcount, down from 6 percent last year.

Association officials noted that firms in many parts of the country are already adding to their headcounts. According to a new analysis of Labor Department data, construction employment increased in 255 out of 359 metro areas between November 2016 and November 2017. Among the fastest growing metro areas are Riverside-San Bernardino-Ontario, California; New York City and Cheyenne, Wyoming.

Even as firms expand headcount, an overwhelming majority – 82 percent – of firms expect it will either become harder, or remain difficult to recruit and hire qualified workers in 2018, up from 76 percent last year. In addition, 78 percent of firms report they are currently having a hard time finding qualified workers to hire, up from 73 percent at the start of last year.

Firms continue to take steps to address these growing workforce shortages. Sixty percent of firms report they have increased base pay rates, up from 52 percent last year. Thirty-six percent have provided incentives and/or bonuses, up from 35 percent last year. Twenty-four percent have increased contributions and/or improved employee benefits to cope with workforce shortages. Meanwhile, 56 percent of firms report they plan to increase investments in training and development, up from 52 percent at the start of 2017.

Companies in all areas of the construction industry say they are struggling with labor issues.

“We’re finding it to be an extremely difficult time to find qualified workers,” says Chuck Graves, president of construction and concrete at McAlvain Companies Inc. “We’re developing a workforce internally by starting early with junior high school students. It’s important to educate them about careers in construction and the benefits.”

“While workforce issues remain their top concern, many contractors are also worried about competition and the impact of decisions made in Washington on their operations,” says Ken Simonson, the association’s chief economist.

He noted that 39 percent of firms said increased competition for projects was one of their biggest concerns for the year. Meanwhile, 28 percent of firms listed growth in federal regulations as one of their top concerns.

Officials with Sage noted that firms appear to be embracing information technology to help address workforce shortages and tight competition. They noted that 50 percent of firms say they currently spend 1 percent or more of their revenue on information technology, up from 47 percent in 2017. In addition, 43 percent of respondents report they will increase their information technology investments in 2018 compared to the prior year.

“Increased competition for projects is driving contractors to advance their use of not only building information modeling (BIM), but cloud technologies,” says Jon Witty, vice president and general manager for Sage Construction and Real Estate, North America. “This is particularly evident in the use of cloud-based mobile solutions on the jobsites, where contractors are using mobile software for daily field reports, field access to customer and job information, employee time tracking and approval and the sharing of drawings, photos and documents.”

The outlook was based on survey results from over 1,000 firms from 49 states and the District of Columbia. Varying numbers responded to each question. Contractors of every size answered more than 20 questions about their hiring, workforce, business and information technology plans.