Moss Adams partnered with AGC of California and AGC of America–San Diego Chapter to collect and analyze salary data from contractors across the Golden State to develop the California Construction Industry Salary Guidefor 2017. The guide covers 22 different functions and provides critical market data to help you make the right decisions for your business. This analysis ran as a foreword to that guide.

The construction industry in California has been on a long upswing. For the most part, that should continue in 2018. However, there’s some uncertainty related to policy that could cloud an otherwise sunny outlook.

National Outlook

Nationally, construction spending remains positive overall but with a closer balance of increasing and declining categories than was true in the past several years.

The Census Bureau reported in early October 2017 that the value of construction put in place—spending on all projects underway—through the first eight months of the year was up just 5% from the same period in 2016, without adjusting for inflation. Residential spending rose a robust 12%, driven by the following factors:

• Eight-percent gain in single-family homebuilding
• Double-digit growth in improvements (additions and renovations)
• Five-percent pickup in multifamily construction, though multifamily spending has been drifting downward since April 2017

In contrast, combined public and private nonresidential spending was flat, with equal numbers of increasing and decreasing categories.

California Outlook

The Census Bureau doesn’t post spending numbers by state, but the Bureau of Labor Statistics (BLS) provides a good proxy—construction employment.

Employment Growth

The number of construction company employees in the United States increased 3%, seasonally adjusted, from August 2016 to August 2017. California achieved double that rate of increase and has generally exceeded the national growth rate for the past several years. Seasonal adjustment is a statistical technique to remove the variation caused by normal weather- or holiday-related fluctuations to allow underlying trends to show more clearly.

Construction employment growth has been widespread by segment and geography within the state. Unlike most states, the sample size of California construction employers is large enough that BLS posts employment data by segment, albeit without seasonal adjustment.

From August 2016 to August 2017, employment increased by the following percentages:

• Eight percent among heavy and civil engineering construction companies
• Six percent among specialty trade contractors and general contractors whose principal business is nonresidential building construction
• Two percent in residential building construction (direct employees of homebuilders and multifamily construction firms)

Employment Estimates

BLS provides construction employment estimates—not seasonally adjusted—for 29 metropolitan statistical areas and divisions of larger metros throughout the states. For most metro areas, BLS combines mining and logging with construction to avoid disclosing data about industries with few employers.

Between August 2016 and August 2017:

• Twenty-five of these locations had increases in construction employment
• Two were unchanged—Hanford-Corcoran and Vallejo-Fairfield
• Two had declines—Sacramento-Roseville-Arden-Arcade had 1,500 fewer construction jobs, or minus 3%; while San Jose-Sunnyvale-Santa Clara had 2,300 fewer construction jobs, or minus 4%

The Riverside-San Bernardino-Ontario area had the largest job increase of any of the 358 locations for which BLS posts construction data with 15,800 construction jobs, a 17% increase. The Anaheim-Santa Ana-Irvine division of the greater Los Angeles area had the sixth-largest increase with 6,100 construction jobs, a 6% jump.

Drivers

There have been numerous drivers of this construction boom, namely, huge office construction projects in San Francisco, Silicon Valley, and Los Angeles:

• Multibillion-dollar airport reconfiguration at Los Angeles International
• Extensive work at the San Francisco and San Diego international airports
• Major transit extensions in the Bay Area and Los Angeles
• Port work in Los Angeles and Long Beach
• Mushrooming distribution facilities in the Inland Empire
• Upgrades and repairs to dams, levees, water, and wastewater systems throughout the state
• Bond issues that passed to fund school, community college, and state university construction

Many of these projects will continue or start in 2018. However, it isn’t clear there will be a net increase in activity because several major projects will have wrapped up by early 2018, such as:

• Apple and Salesforce office headquarters
• Salesforce (formerly Transbay) Transit Center in San Francisco
• Port expansions and related infrastructure in Long Beach and Los Angeles

Effect of Population Growth

California’s population growth rate has slowed sharply in the past two years, from 0.9% between July 2013 and July 2014 to 0.66% (slightly less than the national rate of 0.70%) between July 2015 and July 2016.

Immigrants have made up for the native-born population decline in the past. However, the exodus of US-born residents to states with lower taxes, housing costs, or barriers to business is likely to continue. While no specific link has been substantiated, some have suggested a link between tighter border controls, more aggressive deportations, and new policies or rhetoric and the decision of some foreigners to leave the United States or to stay away rather than visit, study, or settle here.

The absence or departure of those individuals lessens demand for housing, hotels and resorts, and other types of construction. It also tightens even further the pool of workers that contractors compete for and reduces state and local tax revenue.

Trade

The state’s many export- and import-dependent businesses may suffer if US trading partners retaliate against new tariffs or other import restrictions. In that case, demand for transportation and distribution structures could drop.

Despite these concerns, it appears likely that the US economy and population will continue expanding in 2018, adding to demand for most types of construction. California contractors should benefit as well.

We’re Here to Help

The 2017 Construction Industry Salary Guide contains more in-depth insights into these trends. To purchase a copy of the guide, visit our website. For any additional questions, contact your Moss Adams professional.