Contractors expect a range of public and private markets to grow, and 71 percent of U.S. construction firms plan to expand their payrolls in 2016, according to survey results released Jan. 6 by the Associated General Contractors of America and Sage Construction and Real Estate.

The survey, conducted as part of The Challenges Facing a Growing Industry: The 2016 Construction Industry Hiring and Business Outlook, indicates that U.S. contractors foresee a positive year despite tight labor conditions, regulatory burdens and information technology security challenges.

"The construction industry will continue to recover in 2016 as many firms add to their headcount amid growing demand in a range of private and public sector markets," said Stephen E. Sandherr, the association's chief executive officer. "The industry also faces a number of challenges that have the potential to dampen, and possibly even undermine, the sector's recovery."

Association officials noted that while 71 percent of firms say they will increase their headcount in 2016, in most cases that hiring will only lead to modest increases in the overall size of firms. Sixty-three percent of firms report their planned hiring will increase total headcount between 1 and 25 percent while 8 percent report they will expand their workforce by more than 25 percent this year.

Contractors expect a mix of private and public sector market segments will drive demand for construction in 2016. As measured by the net positive reading – the percentage of respondents who expect a market segment to expand versus the percentage who expect it to contract – respondents are most optimistic about the outlook for retail, warehouse and lodging (21 percent net positive).

Respondents were also positive about the outlook for hospital (19 percent net positive), private office (19 percent), multifamily residential (14 percent) and higher education (13 percent) construction. And they are optimistic about the prospects for K-12 school (12 percent) and public building (12 percent) construction, particularly in contrast to last year when contractors were generally pessimistic about all public construction market segments.

Contractors are less optimistic about other segments, including manufacturing (7 percent net positive), other transportation (3 percent), power (1 percent) and direct federal (-1 percent) construction market segments.

The AGC said "it is important to note that this year's outlook survey was completed prior to enactment of federal legislation to increase funding for highways, transit and direct federal agency spending, and to extend the expiration date for wind, solar and other tax provisions helpful to construction."

The AGC - which more than any other group has been sounding the alarm about workforce shortages - said the survey highlights how real the problem is. "Construction firms continue to cope with shortages of available workers," the contractors association said. Seventy percent of U.S. firms report they are having a hard time finding either salaried or craft professionals. And 69 percent of respondents predict that labor conditions will remain tight, or get worse, during the next 12 months.

The survey found that contracting firms are responding to worker shortages by increasing pay and/or benefits. Forty-nine percent of respondents report they have increased base pay rates, 30 percent report they are providing incentives and/or bonuses and 23 percent report they have increased their contributions to employee benefits to retain or recruit workers. And nearly half of firms report they plan to increase their investments in training and development compared to 2015.

"What is particularly striking about the findings on worker shortages is that they are consistent with the responses from last year's outlook," said Ken Simonson, the association's chief economist. "In other words, after a year of raising pay and increasing benefits, contractors remain as worried about the lack of qualified workers as they were at the beginning of 2015."

In addition to coping with worker shortages, contractors are also worried about the continued increase in health care costs. Seventy-nine percent of firms report the cost of providing healthcare for their employees increased in 2015 while another 81 percent expect their healthcare costs will increase in 2016.

"As long as local, state and federal officials are willing to act on our workforce measures, embrace a more rational approach to regulations, identify measures for controlling healthcare costs and protect e-commerce, the industry should continue to expand," Sandherr said referring to policy proposals the association is making. "That is precisely why we will continue to focus our energies on ensuring the continued growth of this industry."

The 2016 outlook was based on survey results from more than 1,500 construction firms from all 50 states and the District of Columbia. Varying numbers responded to each question.