Technical Excellence – It’s the Small Details
In the orchestra of construction, progress is systematic and purposeful, but with the many moving parts sometimes the little details are overlooked. But it’s the small details that demonstrate the professionalism and passion your project team has for their trade. Here are three fine details not to miss.
- Fit & finish to be as flawless as possible – Demonstrates knowledge of how pieces fit together and the watchful eye of your construction partner. Are the corners straight and true? Are the trim and details clean? Are the paint lines crisp? Is everything installed to the standards? All these little items measure how meticulous the construction team paid attention to the easily overlooked details during crunch time at the end of the project. Interiors take only a couple of weeks to complete yet this is what you and clients will see every day. There is no perfect job which makes it even more important never to lose sight of quality. Have you looked lately at your building’s fine details?
- Clean job site & trailer – A clean job site and trailer improve efficiency and safety. Organization means no lost time looking for tools and materials. A clean job site mitigates accidents that not only injury a worker but possibly one of your staff members. An injury might also cause lost time affecting your project schedule. A clean job site and trailer leaves an impression of organization, better quality, and safety – is your contractor leaving you with a good impression?
- Consistency in customer service & communication – No matter if your project is $10,000 or $10 million you should be treated as if you are their only client. Consistency in customer service and communication is every team member knowing exactly what is going on with the project at all times, showing respect not only to you as the client but the subcontractors and suppliers, and professional daily interactions in addressing challenges and working toward a solution. Do you have an active relationship, appreciation, and camaraderie with your construction partner?
“Technical excellence can only be achieved through a full-team effort —everyone paying attention to details while keeping their clients’ best interests at the top of their mind.”– David McIntosh, Vice President
2016 4th Quarter Economic Indicators
A Return to Normalcy
by: Salim Furth, Ph.D.
As of the end of 2016, economic growth has been normal for at least a year. With a few exceptions, data indicate an economy
operating at or near its “natural” or “potential” level.
The unemployment rate reached a nine-year low of 4.6 percent in November and has not exceeded 5 percent since September 2015. Experience from previous periods of sustained growth indicates that little further improvement can be expected.
Gross domestic product (GDP) is growing at a steady but unimpressive rate. Adjusted for population growth and inflation, GDP grew 0.8 percent from the third quarter of 2015 to the third quarter of 2016.
Private domestic investment grew rapidly from its recession trough but peaked at 17 percent of GDP in early 2015 and has not grown since then. The lack of further growth is both an indicator and a cause of the end of the recovery: Strong growth in wages and GDP depends on investment. At just 16 percent to 17 percent of GDP, investment is treading water.
Like investment, labor force participation has not reached prerecession levels. Part of that change is due to the retirement of the baby boomers: People born in 1951 turned 65 in 2016. However, prime-age workers are also less likely to be working or
looking for work now than in 2007. Persistently low participation is one of the main challenges facing policymakers in 2017.
Monetary policy is an exception to the prevailing normalcy. Inflation has remained below the Federal Reserve Board’s 2 percent target for years. Consequently, the Fed has left its policy levers in positions that are typical of a recovery and is likely to remain accommodative until inflation reaches 2 percent.
Furth, Ph.D., S. (2017, January 13). Economic Outlook for 2017. Retrieved from heritage.org: http://www.heritage.org/research/reports/2017/01/economic-outlook-for-2017
2016 3rd Quarter Economic Indicators
Executive Summary
Over the last two weeks, we have received positive news about two key economic measurements: 3rd quarter Gross Domestic Product and the October Jobs Report. Positive results on these two indicators lead me to predict the long anticipated Fed rate hike will finally be announced during Federal Reserve Board’s December meeting.
Real gross domestic product increased at an annual rate of 2.9 percent in the third quarter of 2016, up 1.5 percent from the second quarter, according to the “advanced” estimate released by the Bureau of Economic Analysis. This increase in the third quarter is the direct result of increased personal consumption, an increase in exports, and an increase in business inventory/investment.
Then there is the October Jobs Report. Our economy added a modest 161,000 net jobs and reported an unemployment rate falling from 5% to 4.9%. Many economists now consider the U.S. to be at full employment. Revisions to the August and September numbers in the October report added a total of 44,000 more jobs. Lastly, average hourly wages rose 10 cents to $25.92 and are up 2.8% year to date.
With the combination of wage growth finally rising and a low unemployment rate that is forcing employers to bid up wages to attract from a smaller pool of available talent has giving rise earnings gained, which in turn, fuels stronger inflation. These are the reasons that lead me to my prediction above.
This isn’t necessarily bad news as the economy is expected to continue its current expansion, now the 4th longest in U.S. history, through 2017. If the economy can chug along through June 2019, it will become the longest economic expansion in U.S, history. We (all of us with kids in college) have our fingers crossed.
Most modern recessions have been proceeded by a cycle of Fed interest rate hikes that make loans (car loans, mortgages, personal and corporate credit) more costly to obtain. This is where the Fed is struggling because it is a balancing act between raising rates and throwing the economy into a recession versus keeping rates close to zero and allowing inflation to “get some legs.”
I am glad that I am just a contractor!
We’re Growing and So Are Our People
While our firm has grown – so have the people in it. Aubrey Harless, Dave McIntosh, Mike Rodriguez and Ted Tinkler all received promotions to Vice President. The Vice President title describes their dedication to our firm and clients, their leadership and mentoring of their teams, and their knowledge and experience within the A/E/C industry.
Aubrey Harless is a leader in North Carolina. His IMMPact team focuses on Industrial and Multi-Unit. They work in both the public (multi-unit) and private (industrial) sectors.
“Throughout our 10 year history in the Carolinas, Aubrey has been a rock since the beginning. His skill set, attitude and dedication are admired and appreciated. His impact on our company and clients has helped to shape our office into what it is today.” – Timothy McClellan, Executive Vice President – General Manager, North Carolina
Dave McIntosh’s IMMPact team focuses primarily on private work with an emphasis on fast renovations — 92% of the team’s work comes from repeat clients.
Mike Rodriguez runs Miles-McClellan’s subsidiary, M-M Masonry, LLC. Mike has grown M-M Masonry into one of Central Ohio’s largest masonry firms. His crew is known for exceptional craftsmanship, and they take great pride in their work.
Ted Tinkler’s IMMPact team services both the private and public sectors. While his team performs small, complex projects for their repeat clients, they are also set up to run large volume projects.
“Dave, Ted and Mike, and their respective teams have done an outstanding job of focusing on relationships over the last three years. Relationships with their subcontract teams and their field teams produce the quality projects, and the high results in the field keep the clients satisfied – strengthening the relationship with both the client and the architect. It is a cycle that continues to result in more work keeping all three teams as busy as they have ever been.
Watching the success of all four teams tells me we have set the right goals, and we have the right people. I hope we are not too busy to have some fun along the way!” – Matthew Q. McClellan, President
2016 2nd Quarter Economic Indicators
Executive Summary
Construction opportunities are leveling out in all sectors except for a decrease in retail, and backlog remains at high levels across the country and across market sectors. Workforce shortage is still plaguing our industry by increasing the cost of skilled labor. The competition for qualified employees has now begun to affect office/ management positions, as well as field positions. This is leading to an increase in construction turn-over rates which is now higher than the national average for all industries.
Over the past three months, the Architectural Billing Index remains positive due to variations in design activity in major business categories and predicts growth over the next months. Residential design led the 1st half of the year while the second quarter shows a rise in institution projects. The value of design contracts did dip below 50 in January 2016, for the 1st time in 2 years. It will be interesting to see if construction sees a corresponding dip in bidding activity late fall of this year.
Core inflations has steadily been in the 2% range throughout 2016 (cost of products excluding food and energy), while the GDP has been growing steadily in the low 1% range. Both measurements help to tell the story of this long, steady (not flashy) period of economic expansion we have experienced. This coincides with a bull market now in its 7th year and predicted to continue its run to record stock market highs.
The housing industry is remaining strong due to low mortgage rates. In April 2016, new home sales hit their highest level since 2008 (yep – 2008). Average home prices have also hit an all time high.
Unemployment rates remain low, but the number of long-term unemployed changed little and accounted for 25.8% of the total unemployed. The number of involuntary part-time workers (folks who are looking for full-time work but can not find full-time jobs or their employer reduced their hours) did decrease by 587,000 to lower the national total to 5.8 million. And, we just reported the second straight strong jobs-growth number – an increase of 255,000 in July versus an expected increase of 180,000.
Overall, we expect to see more of the same throughout 2016. Our monthly bidding and work-in-place numbers are as strong as they have been in past 5 years. We will keep our eye on the fall/winter opportunities to see if we mirror the AIA billing index, however, we see the expansion continuing into 2017.
Performance Summary
Construction Backlogs Reaches New High for Largest Contractors
Nationally, ABC said its Construction Backlog Indicator (CBI) inched down to 8.6 months during the first quarter of 2016, which represents a decline of 0.8% from 2015’s final quarter. CBI has expanded by 2.7% on a year-over-year basis, however, which translates into an increase of more than 0.2 months.
“Contractors are no longer becoming busier, rather, the level of activity has stabilized at a reasonably high level,” said ABC Chief Economist Anirban Basu. “Most contractors continue to express satisfaction regarding the amount of work they have under contract. This is of course truer in certain parts of the nation than others.”
“Subcontractors are much busier than they were several years ago, with general contractors reporting greater difficulty securing experienced contractors,” said Basu. “Some construction firms are turning away work for the first time in years. The recent stabilization of backlog may reflect supply constraints as much as demand stagnation.”
“That said, there are indications that certain commercial real estate segments are nearing the end of their development cycle,” warned Basu. “Developers, bankers and regulators have become generally more concerned by the possibility of overbuilding in hotel, office and retail markets. Many developers indicate that the current cycle is much closer to its end than to its beginning. The implication is that for the first time in years, backlog may be poised to decline after recovering massively since early 2010.”
FMI Non-Residential Construction Indicator 2nd Quarter 2016
“COMPETITION FOR QUALITY WORKERS IS STRONG, THUS LEADING TO OPPORTUNITIES FOR EMPLOYEES TO CONSIDER OTHER EMPLOYMENT OPTIONS.”
– NRCI Panelist
One of the most critical concerns for competition in the construction industry right now is the competition for qualified employees. On average, panelists are experiencing a 6.9% rate of turnover for office/management positions and an 8.3% rate of turnover for field management positions. As our analysis below shows, this is a higher turnover rate for construction than the national average for all industries. In the comments associated with our questions below, we received a number of reasons for turnover. Some panelists noted that they have very little turnover. One of the most cited reasons, the improved market for job opportunities for younger employees, has been the subject of a number of papers and reports in the past few years.
Two other current issues were included in this quarter’s survey. The questions that found most agreement concerned the best training delivery methods and the inclusion of safety in training programs. While there is some room for improvement in the amount of safety training for office/management employees, 96% of companies said all training for field employees has a safety component.
The most contentious issue we asked about this quarter was about the understanding of and potential concerns about the so-called “Blacklisting” order (E.O. 13673), which requires firms to disclose any violations of 14 different federal labor and employment laws for the previous three years to be eligible for contracts worth more than $500,000 with the federal government. Surprisingly, only 40% of contractors that do federal work were aware that this new rule was set to take effect in 2016. Not surprising was that the majority of comments we received about this new executive order were clearly unfavorable.
Architecture Billings Index Remains on Solid Footing
Highest levels of demand at residential firms in over two years.
Buoyed by increasing levels of demand across all project types, the Architecture Billings Index (ABI) was positive in June for the fifth consecutive month. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the June ABI score was 52.6, down from the mark of 53.1 in the previous month. This score still reflects an increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 58.6, down from a reading of 60.1 the previous month.
“The first quarter was somewhat disappointing in terms of the growth of design activity, but fortunately expanded a bit entering the traditionally busy spring season. The Midwest is lagging behind the other regions, but otherwise business conditions are generally healthy across the country,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “As the institutional market has cooled somewhat after a surge in design activity a year ago, the multi-family sector is reaccelerating at a healthy pace.”
The Architecture Billings Index reflects consecutive months of increasing demand for design activity at architecture firms. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending.
Key June ABI highlights:
- Regional averages:
South (55.5), West (54.1), Northeast (51.8), Midwest (48.2) - Sector index breakdown:
multi-family residential (57.9), institutional (52.7), mixed practice (51.0), commercial / industrial (50.3) - Project inquiries index: 58.6
- Design contracts index: 49.7
The regional and sector categories are calculated as a 3-month moving average, whereas the national index, design contracts and inquiries are monthly numbers.