2007 South Central forecast

Manpower shortage stymies growth as big projects loom

By Angelle Bergeron

The shortage of manpower is the biggest challenge facing contractors throughout the South Central region and it’s expected to get worse in 2007.

“We’ve had a real strong construction economy for a long period of time, more people retiring than we are bringing in and a continual increase of projects,” said Henry Hagood, president of Alabama Associated General Contractors, which also covers the panhandle of Florida.

“We’ve had a lot of hurricane work going on from past hurricanes and we’re just starting to get to the Katrina work,” Hagood said. “It will take a lot of manpower, materials and contractors to get it done and I don’t know where they will come from.”

The biggest projects on the horizon for 2007, and the next seven or eight years, are those involving environmentally-mandated work at power facilities in Georgia, Alabama and Florida, Hagood said.

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“That will be billions of dollars of work, but contractors are really going to be challenged to come up with the subcontractors and manpower to perform the work in the next few years. We need more people and better systems to train new people.” 

Louisiana economist Loren Scott agreed that contractors “are grinning about the work but frowning about their ability to find help to do the work.” Louisiana already had a hot construction environment before Katrina and Rita created so much reconstruction work, levee repairs and homebuilding.

Now, in addition to ongoing infrastructure projects like the $1 billion Louisiana Hwy. 1 and the 16 projects that fall under the state’s $4 billion four-laning program, the state is seeing a new wave of projects, including the $800 million new I-10 Twin Span Bridge. Construction in Louisiana will definitely be thriving in 2007 and for at least another decade, Scott said.

The state’s capital is doing very well, with construction of several large commercial office buildings, two or three high-rise condominiums and mixed-use facilities and ongoing renovations of the Louisiana State University campus in Baton Rouge, he said.

“Shaw will spend $175 million building a bio-fuels plant for the Baton Rouge Port and ground was recently broken on a $1 billion Shintech facility,” Scott added.

A deep oil find in the Gulf of Mexico earlier this year will ensure oil-related activity in the state, particularly in the Lafayette and Houma area, for at least the next six years as infrastructure is built, Scott said.

“I imagine they will do that as quickly as possible to get oil on line, especially while prices are so high,” he said. 

Lake Charles lost two casino boats, but construction is under way on $2.6 billion worth of LNG facilities.

“There is still the possibility, although it hasn’t been confirmed, that CITGO will build a $1.3 billion cogeneration facility in the area,” Scott said. Also in 2007, the L’Auberge du Lac Casino is adding a $45 million hotel and Pinnacle is constructing the $350 million Sugar Cane Bay Casino.

“Once the Road Home money is pumped into the Lake Charles area, homebuilding will begin,” said Scott, who remarked that the disbursal has thus far been “depressingly slow.” 

Construction of the two Highway 90 bridges that were destroyed by Katrina represents more than Mississippi Department of Transportation normally advances in total projects in a single year, said Harry Lee James, deputy executive director and chief engineer.

“With those two projects, and all the other hurricane work, we’ve got just about all the crane resources in the world tied up in the southern states right now,” James said.

The availability of materials is fairly stabilized on the Mississippi coast now, said Todd Bruce, associate director of AGC Mississippi. But overall reconstruction continues to move a lot slower than predicted, primarily because of unresolved insurance issues and availability of labor, he said.

In addition to the bridges and casino reconstruction, the coast will see groundbreaking on two hotels in 2007: the Hilton Garden Inn and Elmwood Suites, both in Gulfport. A bond issue was recently passed in Jackson that will undoubtedly precipitate a flurry of school construction, Bruce said. The coast is also in need of 65,000 houses that were lost to Katrina, but the pace is largely dependent upon labor.

“Like we’ve said time and again, if you don’t have a place to house them, what are you going to do with them?” Bruce said.

Indeed, the lack of housing and workforce shortage will definitely contribute even more to overall construction costs in the coming months, Scott said. According to an e-mail survey he conducted in February, wages in the Gulf Coast region had already increased 22-30 percent, and those increases don’t reflect sign-on bonuses, hazard pay and living accommodations.

“If you get a contract to build a high rise in New Orleans, where are your workers going to live?” Scott said. “You can’t build a project until you have housing.”

In Arkansas, the Ozarks area will “suffer from the deep freeze in second-home construction,” said Ken Simonson, chief economist for AGC of America. But the state as a whole will benefit from transportation-related construction.  

Likewise, although all states in the South Central region reflect the nationwide decline in residential housing, they more than compensate with growth in other areas.

“We think construction will slow down in the commercial and residential sectors, but there is enough industrial construction going on in the state with automotive plants,” said Ahmad Ijaz, economist at the University of Alabama Center for Business and Economic Research. “The industrial market should also keep the state’s construction sector good.”

Although Ijaz predicts an overall decline in growth for 2007 (about 1.6 percent, down from 2 percent in 2006), construction is still doing better than many of the state’s other industries, he said.

“There have not been any major layoffs, and we are still looking at an employment increase of 1.9% in 2007 (compared to 2.9% in 2006).

In Tennessee, construction job growth is moving at a faster pace than in other industries, said Matt Murray, associate director of the University of Tennessee Center for Business and Economic Research, which has published an annual state and national economic development analysis since 1975.

Although that growth is slowly decelerating, Murray said, national evidence indicates “fairly strong spending in the commercial and industrial sectors that will help offset some of the weakness in housing. I will also add to that government and non-profit investment.”

Millions of dollars in construction is ongoing at the University of Tennessee campus, which reflects the nationwide trend in public building construction as states recover from the recession, Murray said.

According to a quarterly forecast released in October, using job growth and personal income growth as measures, Tennessee is doing fairly well. Although the 2007 predicted 5.6 percent income growth is a bit more sluggish than the 5.8% in 2006, that still represents a steady growth rate, Murray said.

Likewise, job growth is expected to be 1.4 percent this year, which equals last year’s rate.

Construction employment figures in Mississippi are definitely higher than the national average, and for the year to date are at least 10 percent higher than pre-Katrina, said Marianne T. Hill, PhD, senior economist at IHL.