Some CEOs are celebrating the sudden growth spurt in the American economy while worrying there aren’t enough skilled workers to meet the coming demand. Ray Zinn explains the reasons for the worry and what might help, in this edition of the Tough Things First podcast.
Rob Artigo: I’m Rob Artigo, your guest host for this edition of the “Tough Things First” podcast. Hi, Ray, it’s good to be back.
Ray Zinn: Well, thanks, Rob. Good to be with you again.
Rob Artigo: The Commerce Department recently noted that US construction spending rose to an all-time high of 1.257 trillion dollars, which is massive, in November, of 2017, just months ago. As the construction sector overall gears up for a boom in 2018, here we are in 2018, but CEOs are saying in this particular story they’re hiring but they can’t find a lot of workers. Fifty percent of the companies reported having a difficult time filling both craft and salaried work positions. That seemed like a lot.
Ray, I know that you do tech, but you’re a master of business. Given what I’ve just described, where is America falling short?
Ray Zinn: Anytime you have this sharp of an upturn, it’s gonna ’cause it, so it’s kind of like, you know, if you’ve ever been caught in a traffic jam, you know the cars all come to a screeching stop because of an accident or some other … a lot of cars coming off the off ramp. Then it clears up once the jam is cleared. So, what we have right now is we have a logjam.
You know, things took off very rapidly. In fact, it took off more rapidly that I thought. So, I would have been caught by surprise. I figured it would take about a year, year and a half, but it happened much quicker. I think it happened in six or seven months or something like that, I think, if we go back and look at the record of how quickly this thing reversed itself. I think there was a lot of pent up demand, we had really low inventory, especially in housing. Construction had a very low inventory. We let it get to low.
The reason people let it get too low, let inventories drop low, is because they have a poor outlook for the future. They don’t see, they don’t envision things getting better. If you read the media, you know, there was little hope that Trump was gonna pull off getting this economy turned around. But he gave so much hope and so much enthusiasm that the market just took right off. I mean, the market just started to scream.
In November after he was elected, the market just took off. Why? Because they thought there was gonna be less regulation. They thought it was gonna be a more favorable climate for business. So, the market looks ahead six months, and that’s what happened. We saw the market take off, and now here we are a year later, and it’s all a reality.
Unfortunately, we weren’t ready for it. We were not ready for this level of success. So, a lot of the growth that we’re seeing is pent up. We haven’t realized it yet. So, if we can turn around and we can get people back focused again and get these inventories starting back up again, then we should see the economy growing even faster. Now, it will peak out. It’s gonna level off, because we’ll get too much inventory built. We tend to overdo and underdo things. So, the issue that I’m concerned about is we may overdo it. We may get too much inventory built back in, because that’s a sure sign that there could be a downturn.
I’m predicting that there’s going to be a slowdown in August of this year, 2018. We’ve got to be careful about that. Nothing we can do about it other than be careful, be aware that things could slow down. I’m predicting probably August. That’s a consequence of all this enthusiasm and all this building and construction and optimism is gonna force inventory overbuild.
Rob Artigo: Let’s think about what the CEOs, though, these construction CEOs, are talking about. When they said, when at least half of the companies were saying that they’re having a difficult time filling those jobs for the craft and salaried positions. I think about the craft positions, and I think that there is a lack of skilled workers because we don’t have the people who have the skills now to take the jobs. Or maybe we do. Maybe we need to get the workers to the places where the construction is actually happening. Is that one of the problems, is a locational issue where many of the skilled workers are in a place that has a slowdown, but in another part of the country they’re building like crazy and they don’t have the workers?
Ray Zinn: Let’s liken it to a drought. You know, during the drought the municipalities will charge you for overuse. In other words, there’s an escalating cost for the use of that utility when you use too much. So, they penalize you. What happens is you learn to cut back. You put in turf grass, you know, the artificial grass. You’ll cut back on the kind of shrubs that need water. Now your yard is established with these very drought resistant plants. Then when the water level, the inventory, gets up and we have lots of water, we find that people are still using less water. Then the municipality is saying, oh, no, now we’ve got all this water and nobody’s using it because they’ve cut back. So, they lose.
You know, it’s that sort of thing. People get used to not having this construction and these projects, and these people go off and find other things to do. They become skilled in software. They may be skilled in some other trade. It’s hard to pull those people back as skilled workers again when they’re off, having gone for a few years, in this case eight years, doing other things. Sometimes they are willing to come back, but they have to be retrained again. They’ve got to develop their skills again. Others don’t want to come back because they have found other jobs, and they just didn’t like the ups and downs of the construction industry. You know, we could see a real problem in the construction trades, especially, because of the lack of available manpower to do that.
Rob Artigo: You know, I think about the trainings, and I believe you were talking about what happens through the course of a construction worker’s life, for example. They have the ups and downs. You know, they go to work and start out as a helper or whatever, but they have a job. Then they don’t have a job. So, they get some more training or they find another job. If they find another job, they end up sliding away from the construction industry. If they find training, they start guiding back into the construction industry because they have new skills. As they go through their lives, this is what happens to them. It’s in and out of the job, and so it’s either find something else or get some more training. So, again, you have a diverging path each time as they go through.
What about just simple foundations getting people into trades in general? For example, trade schools. Do we need more? Do we need to incorporate those into high schools now, where we used to have stuff where you learned trades in high school, but you don’t have that anymore.
Ray Zinn: It’s naturally happen. When the demand gets good enough and people feel comfortable about going into those trades, they will. It’s kind of like the aerospace and military companies, Rockwell, and Boeing, and Grumman, and people like that. There was a big cutback because the demand for space and military dropped off tremendously over the last eight years. So, those people found other occupations. Maybe they didn’t study at school, didn’t study aerospace engineering or whatever. So, if there is a pickup in space, and that’s what Trump’s talking about now, is increasing that activity. There’s just gonna be a lack of people with those skills.
That happens in any case, whether it be a dentist, whether you’re a construction worker, whether you’re an engineer. If your demand falls off, you’re gonna go off and find some other way to provide for your family.
Rob Artigo: As always, you can reach out to Ray Zinn with your questions at toughthingsfirst.com. Continue your education and the conversation with all the podcasts, Ray’s musings, and the blogs, and links to information about the book, “Tough Things First”.
Thanks again, Ray.
Ray Zinn: Hey, Rob. Good to be with you.