Construction boom, worker shortage continue

A prolonged economic boom plus state tax surpluses that have boosted public spending minus a labor shortage and higher fuel prices, factored by the effects of interest rates equals ... who knows?

This year's construction season has been both a boon to numerous contractors and a conundrum for anyone looking into the future. Based on contracts and bid opportunities going into next year, it looks as though the Federal Reserve's attempt to head off inflation by raising interest rates won't sideline the bulldozers, backhoes, trucks and cranes, who stand a good chance of doing the heavy machinery equivalent of the hoped-for economic "soft landing."

Spring brought a dip in activity, compared with last year, but by midsummer that had begun to look like a brief pause, perhaps influenced by abnormally wet weather. The latest word from leading companies is that once again, there is so much work that the problem is not overreaching and causing problems with quality or meeting schedules especially with a fiercer-than-ever labor shortage.

As any company that has weathered a growth spurt can testify, "good" times can bring new problems. Those in the industry who take the long view are looking beyond the level of construction activity to consider such matters as whether to move from a focus on competitive bidding to a contract management approach to client relations (see separate article "The Low Bid Versus the Foot in the Door"), how to convince towns and cities that housing policies need revision (see separate article "Is It a Quality Job With No House?"), and how to persuade a highly mobile, computer-oriented younger generation to look at construction careers in Vermont.

DOING THE NUMBERS

One quick way to check the temperature of construction activity is through the Department of Employment and Training's employment estimates.

For contract construction, the preliminary figure for July was 16,350 jobs. Going back in the year, the figures were 15,950 for June; 15,200 for May; 13,700 for April; 12,950 for March; 12,950 for February; and 13,550 for January.

The comparable numbers for 1999 were: 16,250 for July; 15,800 for June; 14,950 for May; 13,750 for April; 12,000 for March; 12,000 for February; and 12,300 for January.

The slight drop for summer jobs took place at a time when the total number of jobs was increasing. The preliminary number for July of this year was 291,000, compared with 286,950 for 1999; in June the total this year was 295,650, versus 290,450 a year ago - a 1.8 percent increase.

The FW Dodge Division of McGrawHill reported in late July that June saw a 26 percent drop in overall construction activity compared with that month in 1999. Based on their reporting sources, there had been projects valued at $52,204,000, versus $70,989,000 a year ago -- a 26. 5 percent decline.

The falloff was not evenly distributed. Residential construction, $24,870,000 of the total, was down only 1 percent, while nonresidential work, at $13,174, went down 42 percent and "nonbuilding" construction (roads, bridges, dams, water, utilities, airports, communications systems, etc.), accounting for $14,160, was down 39 percent.

The FW Dodge figures from Robert A. Murray, their vice-president of economic affairs, show the downward trend holding true for the year to date. Total construction went down 24 percent, from $352, 953,000 to $268,127,000, with residential work of $122,468 down 11 percent, nonresidential work worth $77,583,000 down 44 percent, and nonbuilding jobs valued at $68,076,000 were off 11 percent.

It's impossible to make one-to-one links between Vermont activity figures and the fortunes of particular Vermont contractors, because many of the latter work out-of-state as well as near their home bases. This is particularly true for the largest companies, who have benefited at times from relationships with major national corporations or a national reputation for special expertise, and for the companies working in the Connecticut River Valley.

Based on reports from Vermont contractors, it seems highly likely that activity would be much higher if there were enough qualified employees available. Several sources said they were holding back on the amount of work they were doing for lack of such personnel, and one speculated that some of the Vermont workers may have gone out of state to take advantage of higher pay in areas where the economic expansion has been even more intense.

Supply shortages have also in some cases been a limiting factor. For instance, in July the Weybridge Select Board learned that a bridge under repair in that town would not be completed by November as initially expected, because the necessary steel girders were not available. The bottleneck was blamed on the number of similar projects competing for materials.

While housing construction seems to be stronger than other sectors, it has also shown the effects of interest rate changes, especially at the national level. Four straight drops in housing starts from February through May helped influence Federal Reserve Board thinking, according to some observers.

At the National Association of Homebuilders in Washington, DC, economist Gopal Ahluwalia said there were about 2,600 housing starts in Vermont in 1999, but with 30-year fixed-rate mortgages averaging 8.5 percent this year and expected to go to 8.8 percent next year, they see Vermont having about 2,500 starts in 2000 and about the same number in 2001.

In the shorter term, Ahluwalia noted that those rates averaged 8.64 percent as of May 19, but had backed off to 8.04 percent by midAugust. Still, "it looks as if housing is in a period of decline," he said but a mild decline. "Soft landing" seems to be the right term, he said, and "that means it will be okay."

Arthur Woolf, the editor of the Vermont Economy Newsletter, noted that housing permits authorized by the towns

they survey were at 869 this May, compared with 835 last year at that time. But in the longer term, there has been a steady rise, from 1,890 in 1997, to 2,254 in 1998, to 2,641 to 1999.

There is a "wealth effect" from the stock market rise, Woolf said, and "people still have lots of capital gains they have not unlocked. People still have a lot of paper wealth."

School construction and addition projects won't be dragging things down. According to Cathy Hilgendorf, the Department of Education's school construction coordinator, the total value of projects has been around $40 million in recent years. Ibis fiscal year' with three projects that the Legislature belatedly approved, the total should be around $50 million, with the state paying 30 perce t of that through its aid, she said.

One phenomenon has been a problem for the clients, Hilgendorf said: getting bids that all come in higher than anticipated. There seems to be about a 10 percent jump in construction prices, she said.

For an on-the-ground assessment, Associated Contractors of Vermont executive director Tom Serrani said "I just came from our big annual dinner and golf tournament, "where there were about 500 people. "Everybody's reporting they're busy."

Serrani said he was aware of the Dodge figures. "Initially, we started off slow," he agreed, partly because of the wet weather, "but it's starting to pull steady."

ANECDOTAL EVIDENCE

The hardest part of surveying Vermont construction businesses for their impressions was getting them on the telephone. In many cases this proved impossible, because people were too busy in the field.

"I'm running two phones and they're. ringing like crazy," said Paul Biebel of Biebel Builders in Windsor, who said he had a few minutes before he had to go. Meanwhile, there is the labor shortage, which has them limited to 10-15 workers. "We're being careful in how much work we do," he said.

At Summit. Construction i n Montpelier, president Peter Schober had about a minute to talk. "Too busy and not enough help," was his summary.

Not that he was really complaining. The season has been good enough for them to find enough work close to their home base. "There are a lot of good parts to it," he said - but then he had to go.

Nearby in Barre, EF Wall Associates president Joseph Bordas used almost the same words: "We are extremely busy, and help is a problem." He added, "But it has been for a number of years now. There are just not many fellows going into the trades as there is a need for."

Bordas, who has spent 30 years heading a company that now has about 150 summer employees, would agree with the scenario that in an increasingly computerintensive economy, a point-and-click generation is less included to go bricksand-mortar. "As an industry we have to offer more training, more opportunity," he said.

Among E. F. Wall's top projects this year will be a $12 million Union 32 school contract, a parochial school in Morrisville, and a plant expansion for Hazelett Strip Casting in Colchester. "I think things will remain fairly solid for at least another year, then we're due for a decrease," Bordas said. Generally, election years tend to be strong, he observed.

Paul Harold, the general manager of ST Griswold in Williston, is another seasoned observer who sees changes and challenges in the nature of the work force, not just supply-and-demand problems brought on by the national economic expansion. He said that they, too, have boosted their compensation to attract employees, but to their surprise, a benefit package amounting to another $3.15 per hour in costs to the company proved less of a draw than, say, a 50 cent increase in hourly pay.

To Harold's mind, that signals a younger pool of potential employees, who are not yet at the age when health becomes a. serious consideration. Also, he said, it may signal a need for more school courses in personal financial management.

"It's very strange," he said. "They seem to just want to look at the dollar pay." Talking with other business people in the area, he, has learned about a phenomenon called "park- hopping - " someone will take a job with one company in an industrial park, get to know what the pay is at other plants in the park, and then change jobs, often for the sake of a seemingly minor pay differential.

Griswold now has about 165 employees, Harold said, "right today we could probably take on 20 to 30 employees if they were there. We don't have the craft people like we used to have."

"A lot of them I think have moved out of state," Harold said. Also, many young people see computer jobs as having more of a future, he said.

Pizzagalli Construction vice-president Gary Warner said retaining and attracting employees "is a continuing effort on our part. I think that as a company we offer a very generous benefits package and wage structure. We have been successful for the most part in finding a very good work force. Our own employees are our best referrals."

Like many other companies that know it won't be possible to quickly take on more help, Pizzagalli has to watch the way personnel and resources come together to meet project schedules. But Warner said that's nothing new for a company that has grown to 900 employees in 14 states.

"Our company is very proud of its client satisfaction," Warner said. Bringing in projects on time is "a critical issue for us," he said.

Their season is going very well, Warner said, with bid contracts backed by ongoing work for IBM and OMYA. Things were a little slow in getting started this spring - wet weather did affect some site preparation, among other factors - but now it is "very strong" and "we don't expect a downturn," he said.

"Things are going along well," said Otto Engelberth of Engelberth Construction in Colchester. Among their largest projects will be a slopeside village

at the Stratton Mountain Resort, which will cost about $26 million over a two-year period; renovations for hospitals in Brattleboro and in Hanover, New Hampshire (Dartmouth-Hitchcock); two jobs at Dartmouth College; industrial projects in New Hampshire and in Vermont for IBM, Wyeth, and Ashton-Johnson; an addition at Burlington International Airport; and schools work in St. Albans and South Burlington (five school buildings).

"I think there is a significant amount of pent-up demand in the marketplace," Engelberth said. "I think we will have a fairly healthy market for the rest of the year."

Areas of the state outside traditionally strong Chittenden County are reported good seasons. At the John A. Russell Corporation in Rutland, director of business development Tim Scully said "It is outrageous. It is so busy."

Keeping up their 150-worker roster with all the equipment related to their specialties isn't easy, but it helps when projects have deadlines and subcontractors suddenly have problems of their own. Scully said that in the competition for proje ts "they pick the John A. Russell Corporation because we have the resources to accomplish things inhouse if we have to."

Brandon has two sizable construction firms, and both said they were doing well.

"Very busy," was the summary from Peter Breen, a co-owner of Naylor & Breen Builders, which is up to around 38 employees. "We are not really taking on anything new until this winter. We are a little short of good, quality help. We could always use more."

A question about the effects of wet weather brought the response "I don't think it really slowed us down. There's enough different job tasks that can be done that aren't weather dependent."

Sometimes final grading can be delayed, because 'you need it pretty dry to put topsoil down," Breen said.

Some of the company's work has been near home, such as a threebuilding affordable housing project and a half-million-dollar upgrade to the local wastewater treatment plant that requires a new building for phosphorus removal equipment. Breen said there has been a $1.5 million affordable housing development in Manchester, work on the facade of the Cioffi Building in Rutland, and residential work, with an indoor tennis court in Midlebury soon to begin.

Breen said their residential work has included some major structures, such as one house in Sudbury that will be 5,000 square feet. Brandon's other major construction company, the McKernon Group, has a strong clientele for high

end residential work, and has also spoken of doing major new construction of that kind.

Larry Rowe, the sales manager for the McKernon Group, said, "We are basically oversubscribed. We are extremely busy," and for the future, "things look very busy."

One of the McKernon Group's longterm initiatives is using "green" construction materials and techniques. Rowe said they have been encouraged to see better state energy efficiency standards for new homes, and the Five Star energy rating program for new construction.

The latter awards the top five-star designation for a combination of things, including efficient lights and heating, and more than adequate insulation, Rowe said. The McKernon Group has begun two homes whose specifications match the program's, and founder, owner and CEO Jack McKernon's own recently built home is also Five Star, he said.

For a Bennington County perspective, it was necessary to contact the town office, where Assistant Town Manager Paul Bohne tracks building permits. "We're way ahead of last year at this time," he said, with a grocery superstore on Northside Drive probably the largest single project. Also, the Aldi grocery store chain, which stocks about 900 of the best-selling items on a one-per-category basis and uses automated checkouts and other advanced systems to help keep prices down, will soon put its first Vermont outpost in Bennington, he said.

Two bridges have been rebuilt, Bohne said: the Paper Mill Village Covered Bridge, which was completely replaced with an identical wooden bridge due to major problems with timbers stemming

from vandalism to the roof; and a historic metal truss bridge. The 'Bank of Bennington has expanded its facilities, and the June building permit list included four commercial renovations.

Perhaps the most telling sign of boom times, Bohne said, is that a "huge" overstock of housing, which had been around for a decade, is almost gone. "Now we're seeing new construction," he said.

Roger Gilman, the president of Miller Construction in Windsor, said he talks with many others in the business, and "I don't know anybody that isn't busy, really. On both sides of the river, there seems to be plenty of work."

Miller Construction's own forte is bridge construction and repair, and in that sector, too, Gilman and his 45 or so employees are seeing good times. The State of Vermont seems more committed to fixing its infrastructure, he said, and that has brought work in places like Townshend and Wilder. New Hampshire is spending on bridges, too, and that has brought them work in Gilsum, near Keene.

"This has been the best in some time for us," Gilman said.

Even in northern Vermont, which has chronically been in a last-least position, things are warming up. That was the word from Grant Spates, vice-president of Spates Construction in Newport, though "it took a while" with spring being slow.

"It seems to have picked up," Spates said, to the point where he is wondering if there's an election year effect. The 14-employee company is doing work for the Ethan Allen furniture company, has a post office to build in Derby, and also goes into New Hampshire to find contracts, he said.

The latter work has made the rise in fuel costs a headache, Spates said. Costs have to be passed along for a construction firm to stay in business, and by their calculations, what used to be a 41 cent per mile expense for running a vehicle is now up to 45 cents.

'It definitely is a factor you have to look at, especially if it's a six- to eightweek job," Spates said. It's at the point where if two or more hours of driving are involved, he will tell the works to try getting a motel room during the week rather than commuting.

Spates Construction does more commercial work, which "looks good through the end of the year." As for residential work, the Northeast Kingdom's large number of unutilized older houses cuts into the opportunities for construction, but creates remodeling possibilities. "From what I'm hearing, all the residential guys are fairly busy this year," Spates said.

CONCRETE EVIDENCE

Anyone trying to assess the state of the construction industry should consider what is happening with concrete, said Vermont Economy Newsletter editor Art Woolf. Estimates and statistics may fail to pick up the industry's little guys, the ones working out of a pickup truck, sometimes alone - but "everybody's go to use concrete," he said.

A check with some of the larger suppliers of that commodity found a some

what less ebullient assessment of how things are going, though they, too, have been much busier than in the dark years of the early Nineties.

"I believe it's a slower start than last year," said ST Griswold general manager Paul Harold. Rain makes more of a difference in dealing with concrete, he noted, and in June there were only three days without rain. (In mid-July, meteorologists informed the public that Vermont had just been through something it hadn't seen since April: three rainless days in a row.)

Concrete companies also feel the pinch from fuel price increases more than other parts of the business. Moving aggregate and mixed concrete "makes up about 50 percent of our costs," Harold said. "Being a business, we have to pass costs on," so that raises construction costs as a whole. For his own company, it means raising bid prices and running into competition from locally based suppliers who may not be facing the same costs.

"You've got to stay right on top of it," Harold said of the petroleum situation. "We're trying to be a lot more efficient than we ever were." Every effort is made to arrange trips so they are productive in both directions, and when job opportunities come up, "we're trying to leave the farther ones alone."

Joseph P. Carrara & Sons, with about 220 employees between its three plants and its ready-mix and pre-cast concrete operations, operates throughout the Northeast and New York. Their market region has about a 300-mile radius, largely because the pre-cast concrete can supply a variety of large-scale projects in urban areas, according to principal Joe Carrara (Joseph P.'s grandson).

Overall, Carrara is "very busy," he said. But their ready-mix trade, which serves Vermont from Chittenden County to below Rutland and over the New York line into the Ticonderoga-Port Henry area, is "down slightly," he reported.

Helping to keep up the Vermont end has been public spending on infra -structure, especially bridges, Carrara said. "Bridges have been very strong for us for the last three or four years," he said.

A. G. Anderson's Waterbury office couldn't be reached for comment. But at their Berlin operation, Phil Bushey said that between a school, a library, a sewer

plant and other work, "we're pretty busy these days. We don't have trucks enough."

"It's been busy," said Scott Ireland, president of SD Ireland Concrete Construction in Burlington. "Commercial work is a little down, residential is a little up. It's in line with last year," he said adding that last year was a good year.

Looking ahead, Ireland sees big projects that have been delayed in permit processes, like Maple Tree Place in Williston and the Circumferential Highway around Burlington. And residential, particularly if Chittenden County lands its big dream, a new computer chip fabrication plant for the IBM complex in Essex. Residential work, up around 25 percent from last year, is "very, very busy" and will continue to be, he said.

Running a 240-employee company in a low unemployment environment, Ireland has found himself up against limits on new hiring. "We concentrate on keeping the employees we have, he said. "Most of our guys have 10 to 20 years with us."

It may cost extra money to keep the wages of long-term employees rising to match the pay offering while competing for new hires, but having experienced personnel pays of in things like less down time and lower -worker's compensation costs. Ireland said that the norm for worker's comp is 1. but they have a .78 rating, calculated on the basis of three years of company safety history.

New workers are the Ones most likely to have major accidents. Ireland said. -Your experienced guys who have been with you are seldom hurt." He said.

HAND ME A LEND?

If interest rates are a key to economic activity, that is because rates are an aspect of the availability of credit. That availability may depend on other factors as well, including the policies and outlooks that bank's to the market.

So far, Vermont's banks don't seem to have been pushed into reluctance or negativism by Federal Reserve Board skeptical about the durability of good times. Construction company leaders had no doubts about the banks' participation, and bankers themselves said they continue to see many opportunities in the construction field.

Tim Hayward, executive director of the Vermont Bankers Association. said "Thing seem to be going along at a pretty good clip in all levels now." His impression is anecdotal, not based on figures, he said, but regarding interest rate increases "I don't think that we've seen much of an impact."

"I don't think it's noticeably slowed things," agreed Woolf, who is also waiting to see more numbers emerge.

Graham Gove, of the Wells River Savings Bank, is the Association's mortgage committee chairman. He said, "We've not seen any actual decreases at this point - at least not here, anyway." Hot as construction may seem now, it's nothing like the boom times of the late 1980's, he observed.

Sarah Cowan of the National Bank of Middlebury, who chairs the Association's commercial lending committee, said

"Things are cruising right along. I can't say that the increase in interest rates has had any noticeable effect."

The situation isn't uniform, Cowan said. The Middlebury area is "in a bit of an economic bubble" due to Middlebury College's strong construction program, related to growth in the size of its student body and associated programs and facilities. Chittenden County is doing well, but "some parts of the state, things aren't quite as rosy," she said.

The labor market is to Cowan's mind by far a large factor in throttling back all kinds of commercial and industrial activity. In the Middlebury area, she works with a number of businesses, and lately has seen reductions in business hours due to lack of personnel, or businesses shutting down entirely so people could take vacations.

Keeping staff levels up this year has been "a real issue," Cowan said.

Copyright Boutin-McQuiston, Inc. Sep 01, 2000
Provided by ProQuest Information and Learning Company. All rights Reserved