In the 2011 July/August issue of the Georgia Contractor we wrote an article on Digging Out of a tough Economy. In that article we stated that those who diversify and hang on will be rewarded with a rising of the tide.
For those who did diversify and caught that wave, they found their company being able to survive the worst economic downturn in years. They were able to pull from various construction sectors to include public and private infrastructure as well as commercial and some residential to include plumbing, gas, electricity, telecommunications and water and sewer infrastructure whether it was in rehabilitation or installation of new piping systems. Unfortunately, most of that work was not found in Georgia and those companies who could work outside of Georgia, worked in Tennessee, Louisiana, Mississippi, Florida or the Carolina’s and anywhere work could be found.
While profits were still low, the contracted work helped to keep companies from shutting their doors like so many had to do. For those who did close their doors, many took the opportunity to regroup and learn how to re-invest and re-invent their company with new goals, leadership and strategic planning. “We have rebranded ourselves with our available resources” states one utility contractor.
We had the chance to interview several companies and many remain optimistically hopeful. We heard such comments as “we are covered up,” “it feels good to be busy,” “keeping up and hopeful for better things to come.” Most indicated that 2013 total contracts on the books and prospects for upcoming work had already exceeded all of 2012. This is good news. And the majority has said “it is not as good as it could be but it is far better than what it was.”
These comments were all very positive and it appeared that we are finally digging out of this economic hole. Georgia’s economic performance has improved steadily since 2009 with the state’s coincident economic indicator for March was at its highest level since mid-2008 according to FRB of Atlanta. Helping Georgia’s water infrastructure was GEFA. GEFA provided loans in 2013 to help local communities protect their water supply and quality which also helped stimulate economic growth in the state with the joint Development Authority of Jackson, Morgan, Newton and Walton counties being awarded $5.9 million for an on-site treatment facility and McCaysville, Georgia was awarded $5.6 million to finance the city’s 1 million gallon per day water treatment plant.
Unfortunately, the continuation of a positive economic construction incline isn’t necessarily on the horizon as many may hope or think. While it is not the worst case scenario of a declining economy, the incline in water and sewer infrastructure will be at least a 2% increase a year for the next 5 years according to Brian Moore, FMI, at a recent GUCA Annual Conference presentation. And while this gives us a glimmer of hope it is not what we want to hear.
Brian updated GUCA members on the economy of the construction industry highlighting those industry sectors and areas who were hit the hardest and those who are recovering the fastest. Unfortunately, Georgia will not be in the mix of the fast recovery areas because infrastructure inventory is still low. The tax base was hit hard and this is and was mainly due to the boom and fall of the residential housing market. And although the existing housing inventory is down, the building of new homes has not yet caught up. According to the Federal Reserve Bank, both construction and manufacturing were especially hit hard and government sectors remain especially weak.
For non-residential construction the impact of several Georgia commercial manufacturing facilities such as Kia, Caterpillar and Porche plants helped spur optimism in Georgia and the industry as well as the announcement of a new professional football stadium in Atlanta.
FMI reports that non-building structures such as power, water and sewerage will only increase on average 1–4% over the next 5 years with power being the biggest growth rate at 9.4%. In 2012 the start of Southern Company’s Plant Vogtle Nuclear Plant helped construction figures rise 50%+. But overall Georgia 2013 construction figures could drop in 2013. It is projected that crude and gas pipeline construction will increase from $4.3 billion to $15.3 billion nationwide according to Oil & Gas Journal.
If the building market surges in 2013 and non-residential construction could possibly improve, then that would bring good news to those sectors which also affect underground utility construction.
The rise in installation of telecommunications in Georgia and the added repair of existing utilities helped spur the market the first quarter of 2013 and it continues.
Sequestration seemed to bring on a negative impact as most government agencies started to cut back due to limited resources. And, we just learned at a recent industry meeting in Savannah that money for the Savannah River Port project keeps getting pushed back. Most of the sequestration, if not all, is conceived as being politically motivated and some only saw a 4% reduction in public works business in Georgia as indicated in a FRB panel.
Labor appears to be the biggest hurdle for all construction sectors if there happens to be a huge influx of projects. Employment in Georgia has slowly improved since the recession. Georgia’s construction employment low was at -37.9 and it is now at 4.7 according to Georgia Data Digest. For the utility industry this is not likely since we may have time to work on a more educated workforce for the future through training, introduction of technology and advancements through Go Build Georgia and CEFGA initiatives.
According to FMI there are several things that drive construction which include demographics, political/security demand, consumer demand, economic growth, technology advances, infrastructure needs, security concerns and affluence.
With the influx of design vs. contractor, rapidly advanced technology, slow incline of infrastructure projects and a shrinking talent pool it appears we may be digging deeper into more problems as we try to dig out of another one. Either way, we will keep digging.