According to recently released data from the Annual Survey of Entrepreneurs (ASE), 61.3 percent of American construction firms are profitable commercial enterprises. The differences between construction and businesses in other industries in this regard are relatively minor. As Exhibit 1 shows, the shares of construction businesses recording positive profits, breaking even, and sustaining losses are all within 1.2 percentage points of the averages across all U.S. industries.
The ASE is one of the newest surveys conducted by the U.S. Census Bureau. The survey began in 2014 and data from that inaugural year was released for public use only recently. Previous blog posts have discussed the ASE data on sources of start-up capital, in terms of both start-up capital for construction businesses and use of home equity as a source of start-up capital by U.S. businesses in general. This post focuses on profitability of construction businesses, including factors that have a negative influence on profits.
Overall, taxes and unpredictable business conditions are the two most common factors with negative impacts on business profitability, cited by 48.8 and 43.9 percent of U.S. businesses, and by 54.0 and 46.2 percent of construction businesses, respectively (Exhibit 2).
In fact, most of the items listed in Exhibit 2 affect construction businesses more often than other industries. The exception is changes in technology, which construction businesses cite as a problem considerably less compared to the average across all U.S. industries. However, the two items that most stand out and distinguish construction from other industries are 1) the challenges of finding quality labor and 2) customer late/nonpayment. Both affect construction industry much more often than other industries. The first of these items is consistent with NAHB builder surveys indicating that obtaining qualified labor is a significant and growing problem for many home builders.