2008 Top Specialty Firms

Contractors Press on Despite Recessionary Economy

by Karen Schwartz

Midwest specialty contractors are grappling with declining construction starts and the rising costs of materials but are weathering a recessionary economy.

Data from McGraw-Hill Construction, publisher of Midwest Construction, confirm that each major metropolitan area where the magazine circulates had a decline in construction starts in first-quarter 2008 compared to the comparable quarter a year ago.

Chicago had the biggest drop, 53%, to $2.2 billion from $4.6 billion in the comparable quarter in 2007. The declines were across the board: residential, -65%, to $621 million; nonresidential, -59%, to $765 million; and infrastructure, -18%, to $816 million.

Like the Windy City, Indianapolis and St. Louis had declines in first-quarter 2008 but of a less-severe nature.

Overall, Indianapolis was down 23%, to $822 million. Like Chicago, the deterioration was across the board: infrastructure, -53%, to $99 million; residential, -23%, to $302 million; and nonresidential, -8%, to $420 million

St. Louis was down 20% overall, to $943 million. Residential was down 35%, to $383 million; nonresidential declined 5%, to $477 million; and infrastructure dipped 2%, to $84 million.

The lone bright spot was Milwaukee, the smallest metropolitan area in the region where Midwest Construction circulates. Starts went up 12%, to $345 million. Nonresidential was up 29%, to $146 million, due in part to a boost in the automotive services category that included a project at Johnson Controls’ headquarters. Infrastructure was also up, 48%, to $81 million due in part to a number of projects at the Milwaukee Metropolitan Sewerage District.

But even Brew City was not immune to a fall-off. Residential dropped 16%, to $118 million.

The score of 50 is the dividing line between economic expansion and contraction in the American Institute of Architects’ Architecture Billings Index, and the AIA had a score of 36.9 for the Midwest—a significant decline from the 51.8 for May 2006. In addition, the University of Illinois Flash Index—a weighted average of Illinois growth rates in corporate earnings, consumer spending and personal income—was 102.3, a half-point drop from its April reading and its lowest point since September 2004, when it was 102.2. It also was 4.3 points lower than a year earlier.

Materials’ Costs Up

Specialty contractors in the Midwest are reporting that the cost of materials has gone up dramatically since 2006.

“Copper cable has more than tripled from a few years ago” says Steven Witz, vice president of Skokie-based Continental Electrical Construction Co. “And anything made of steel has more than doubled in that time. It takes more time for builders and developers to recognize the impact of cost escalation, but we see it right away when it happens.”

Specialty contractors are also dealing with higher fuel costs.

“The price of fuel has impacted our bottom line,” says John Gaylor, CEO of Gaylor Inc., an electrical contractor headquartered in Carmel, Ind. “When we submit a price for a project, we have to raise our prices when the cost of fuel goes up.”

Kay Anagnos, president of Justice, Ill.-based Anagnos Door Co., a commercial and industrial door contractor, adds, “I have to go where the work is, and my installers are driving big trucks. I have to pass the increased fuel cost along to my customers.”

Weathering the Storm

Though the recessionary economy has had an impact on specialty contractors, they are confident they can weather the storm.

“Our repair and maintenance work seems to be increasing this year, and our backlogs have increased,” Anagnos says. “At the same time, in my particular trade, we do many small jobs compared to other companies that do fewer larger jobs. I’m ahead of last year in terms of jobs, but it could level out.”

Work involves fast-track assignments with tight schedules for all trades and an enormous amount of conduit, cable and equipment, Witz says.

“Three of the industries we’re focused on are health care, hospitality and mission-critical data center work, and they seem to be recession-proof,” he adds.

Business is also flourishing at Gaylor. In June the electrical contractor had a record-breaking backlog of $200 million.

“We do a lot of maintenance and electrical construction work for Japanese automakers, which are clearly doing much better than GM, Ford and Chrysler,” Gaylor adds.

Some specialty contractors have bumped up their hiring this year, while others have decided to put on reins.

“I’m doing less hiring this year than a year ago,” Anagnos says.

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