An optimistic forecast for the construction industry in 2006 includes continued growth, but expect the bad with the good as challenges arise, according to a recently released report from management consultant FMI Corp.

Finding talented employees remains a hurdle across the board of the industry. And while some of the demand has been filled by nontraditional sources (women and Hispanic workers), the numbers are insufficient to fill positions as more Baby Boomers retire.

Rising material prices and spot shortages may slow some markets down and lower profits, even as backlogs grow, FMI reports. Overall growth, the group says, does not guarantee growth will be even, but the coming year offers “great potential for contractors armed with good information and strategies to tackle both old and new challenges.”

The report “FMI 2005-2006 U.S. Markets Construction Overview” details trends for industry sectors. Visit www.fminet.com for further information.

Petroleum and natural gas prices will have an impact on the industry, says Ken Simonson, chief economist, Associated General Contractors of America. Plus, the increase use in plastic pipe is affected by rising costs in oil, which is used in its manufacturing.

Diesel fuel costs by mid-November 2005 were 22 percent more than the year before, according to the DOE's Energy Information Administration (www.eia.doe.gov).

Cement and concrete products have risen 10 percent to 12 percent in the last year. In addition, spot shortages have been reported in 32 states, even as U.S. cement production rose 2 percent in 2004. Gypsum prices rose more than 10 percent in each of the past two years. Strong demand for single- and multi-family housing exhausted production capacity, Simonson says. More production is expected for 2006 and gypsum prices are likely to rise less than 5 percent in the new year.

Finally, though construction employment has grown twice as fast as overall U.S. employment, wage growth has been moderate. In 2006, as demand for nonresidential labor grows and inflation catches up, wages should slightly increase. Labor costs will be affected as benefits continue to grow faster, led by an 8 percent to 10 percent increase in healthcare costs and higher pension contributions.