As uncertainty permeates the oil and gas markets, perhaps through 2016, some industry leaders hope that layoffs in that sector will conversely ease the skilled labor shortage dogging Louisiana’s construction industry.
Many of these out-of-work laborers are expected to transition to construction, prompting Louisiana Associated Builders and Contractors and others to ramp up training efforts. “It’s a huge opportunity; we just have to shift and step up our training,” said Andy Dupuy, CEO of Brown & Root Industrial Services in Baton Rouge. Dupuy was one of several industry executives who spoke in November at the South Louisiana Construction Economic Forum, hosted by the Louisiana Construction Financial Management Association and ABC.
Guest speaker at the forum, economist Anirban Basu of Baltimore’s Sage Policy Group Inc., also sees the oil and gas downturn as an opportunity. “A lot of workers on oil and natural gas projects have been dislocated,” Basu said. “These [workers] will eventually transition into other areas that are adding jobs, primarily construction.”
This would come in the nick of time, as contractors ramp up efforts to find more skilled laborers to support a profusion of industrial projects in south Louisiana. The Baton Rouge area announced more than $60 billion in new industrial projects in 2015, while the New Orleans area announced $13.6 billion in new projects.
“There’s a lot of work coming Louisiana’s way,” Basu said. “Some of those projects will get the green light and some will not, but by this time next year I’m certain we’ll be talking about significant construction job growth.” Baton Rouge construction jobs grew more steadily than New Orleans in 2015, since it had more projects entering the construction phase.
Of course, a sustained drop in oil prices is not all good news for construction. The combination of lower oil prices and a strong U.S. dollar in 2015 has created an unhealthy economic environment for the chemical industry, said Dan Borné, president of the Louisiana Chemical Association. This, in turn, will impact contractors working in that sector.
“When oil is low and the value of the dollar is strong, it impacts Louisiana’s exports and therefore affects everybody in this room,” Borné added. “A sustained, long deflation in the price of oil makes the raw material for our competitors in Europe more economical.”
Basu is more concerned about the strong U.S. dollar than oil. “Frankly, low oil prices just don’t make me that nervous,” he says. “Nationally, more contractors and developers are helped than hurt [by lower oil prices]. However, I think we will be wrestling with a strong U.S. dollar all next year. This affects Louisiana deeply since it is one of the more export-oriented states in the country.”
THE DROP IN PRODUCTIVITY
As contractors struggle to find skilled laborers to fill a burgeoning number of jobs, they must also contend with an aging workforce and lower labor productivity. “In the next 10 years, 30% of the workforce will be over 60,” Dupuy said. “I think we’re training just as fast as we can. The problem is in attracting the younger generation to the industry.”
The forum participants applauded Louisiana ABC’s efforts to train more students—the group is training an estimated three to four times more students a year—but they said the bigger problem is in attracting younger workers to the industry. “We’re teaching kids that they have to go to college, but with one or two years in welding school they can make over $100,000 a year,” said Conrad Bourg, president of James Industrial Construction in Baton Rouge. “How many school teachers make that? That’s the mindset that we have to change as an industry.”
Still, the infusion of younger workers brings with it a disturbing decline in productivity, which Bourg suspects is related to a changing work ethic. “During the last 10 years, we have begun to realize that we have to start altering our method for calculating labor productivity,” he added. “Does it take any longer to make a weld? No, it just takes longer to get things done.”
Consequently, lower production per man-hour raises job cost and creates uncertainty. “A contractor has a hard time fixing a price if they can’t put a finger on their productivity,” Bourg noted.
Dupuy said Brown & Root has begun to use a “hybrid contract” with its clients, which sets a target price for labor and thereby accounts for the risk in estimating labor cost. In such an arrangement, Brown & Root is penalized when labor cost exceeds the projected amount and earns a bonus if it falls below.
CONSTRUCTION DRIVES NATIONAL ECONOMY
Basu said the U.S. economy is currently in the “mid-cycle stage” of recovery, driven primarily by nonresidential construction, residential construction, consumer spending, and auto sales and production.
In 2015, the U.S. added 2.8 million non-farm jobs, “and we would have added even more jobs if we had been able to find enough people to fill the job openings,” Basu said. “People in construction know this better than anybody. It’s not enough to create a job opening. You have to have the people with the right set of knowledge, skills and ability, and a willingness to accept the offer of compensation offered.”
In another promising statistic, the construction unemployment rate is lower than it has been in several years, with 233,000 construction jobs added nationwide in 2015, accounting for 3.8% job growth. Fortunately, while other states with a heavy dependence on oil—North Dakota, Wyoming, Oklahoma, New Mexico and Alaska—are at risk for a recession relapse, Moody’s Analytics continues to view Louisiana as a growth state, in part because of the influx of construction.
The biggest drag on U.S. construction has been in the residential market. While multifamily construction is growing, single-family home construction is sluggish, primarily because first-time home buyers are missing from the closing table. “We’re talking about 20- and 30-somethings that are dealing with student debt,” Basu said. “Additionally, it’s also harder to get a mortgage than it used to be.”
There are also cultural differences. “Millennials [born 1980-95] are just different from the way we were,” Basu added. “These young people do not seem to be inspired by asset accumulation. Just look at driver’s license data—16- and 17-year-olds are not getting drivers’ licenses at anywhere near the same rates that we did.”
Additionally, many millennials equate home ownership with wealth destruction rather than wealth accumulation, due to experiences during the most recent recession. Still, Basu predicts that home ownership will improve over the next decade.
Originally published in the first quarter 2016 edition of 10/12 Industry Report. Read more from this issue at 1012industryreport.com.