This Industry Outlook is a portion of the 2019-2020 Arizona CFO Spotlight Survey Report
Levels of Optimism: High
Arizona currently has one of the healthiest construction industries in the U.S., according to the Associated Builders and Contractors (ABC) Merit Shop Scorecard Report. The monthly Scorecard ranks Arizona third in the nation, with a lower unemployment rate than the national average, job growth rate of 10.8 percent and 3.7 percent of state GDP coming from construction growth.
Construction leaders interviewed for this report anticipated revenue growth of 10 – 25 percent, which compares more conservatively to estimates in 2018. They indicated that fees are also up by 3 – 4 percent. Construction backlogs remain high and hover around nine months, with Phoenix cited as a high-growth area nationally for construction. Backlogs in the Western U.S., including Arizona, diminished only slightly from third quarter 2018 to fourth quarter 2018 (perhaps due to wildfires), but have expanded by almost two months from a year ago, according to ABC’s Construction Backlog Indicator report early in 2019.
Risk factors for continued growth include uncertain trade talks and higher import tariffs, extremely low unemployment and high labor costs. Some contractors noted that despite wage increases, some employees will switch companies for an additional 50 cents per hour. To keep employees, companies are covering health care premiums and offering incentives for talent referrals. They are also considering profit-sharing arrangements that include ESOPs.
Although every construction sector seems to be growing right now—in particular hospitality, health care, manufacturing and data centers—aging companies without succession plans are shopping for buyers. Leaders who plan to grow independently or position their firms to acquire other firms are focusing on talent development from within as well as investments that increase administrative and financial efficiency.
“Every foreman has an iPad.”
Construction Leader, Phoenix, 2019
Although leaders do not anticipate a major disruption from new technologies in the industry this year, firms are equipping field personnel with custom apps and tablets to support real-time communication and administration in the field. Their focus is on Enterprise Resource Planning (ERP) systems and large equipment outlays to replace aging equipment rather than on augmented intelligence or unmanned technologies. There is great interest in strategic planning and brand perception research to help construction owners predict the next market opportunities while heading off any client relationship or service issues that could impact business in the next couple of years. Planning is limited to three years or less, according to these leaders. They are keeping track of their cash and investing carefully in new equipment while business is good.