Section 2 - Phoenix MSA Electricians’ Employment Market Size: $511 million in 2018

Section 3 - Market Drivers, Inhibitors and Trends

Section 4 - Political Push for Solar Power in Arizona: Could Open Opportunities for Electricians

Executive Summary

Electricians (including pro and helper) in the Phoenix MSA (Phoenix-Mesa-Scottsdale), Arizona drew combined total wages of $511 million in 2018. Electricians benefited from the strong economy and a buoyant construction market, which includes real estate, industrial, and infrastructure construction. In the MSA, the number of electricians employed, increased by as much as 22% YoY in 2018. Annual wage rates for both professional electricians and helper electricians increased by as much as 5% YoY in 2018.

Most of the factors that influence demand for electricians remained supportive with a positive outlook. Population in the MSA continues to grow at a robust pace; in fact, migration growth in Phoenix MSA grew at the second-fastest pace across the US. Phoenix MSA, which accounts for the bulk of the population in Maricopa County, made it first among all counties in the US for domestic net migration and population growth.

The unemployment rate continued to decline in the MSA, reaching 3.7% in 2019, down from 3.9% in 2018. Arizona, as a whole, as well as the Phoenix MSA, have a younger population as compared to the national average. In 2017, the median age in Phoenix MSA was 36.7 years as compared to 37.8 years at the national level.

The per capita income growth in Phoenix MSA also remains strong. Per capita income in the MSA grew at 3.4% CAGR during 2010-2017, posting a sharp recovery from the global financial crisis. The construction spending in Phoenix MSA has been substantial; the construction spending grew at a 9.2% CAGR during 2014-2018, and it is projected to grow at 7.1% CAGR during 2018-2021. Early signs of spending slowing down are apparent though, as the spending slowed down from 4.3% YoY in 2018 to 2.2% YoY in 2019.

Another development/factor that can potentially drive up demand for electricians is the solar industry. Recently there has been a political push to increase the generation of energy through alternative sources. And with over 300 days of sunshine, solar energy appears to be winning the case. This could open up further work opportunities for electricians.

A couple of factors though could likely decelerate the rate of growth in the Phoenix MSA electricians’ market is the slowing real estate market due to higher ticket prices and a continued shortage of electricians. The mean property prices have corrected slightly in 2019 as the sales slowed down remarkably during the first half of 2019 and have been more or less steady since then.

If a further healthy correction in prices takes place, then it could lead to higher sales, otherwise if the status quo prevails the property sales would remain muted. The Phoenix MSA reflects the worker shortage trend at the national level and continues to face a shortage of electricians. And with pre-committed completion dates of ongoing construction projects, contractors are struggling to meet deadlines.

At the overall level, the conditions remain favorable for electricians; however, electricians need to exercise caution in terms of their growth expectations in the future. The rate of expansion is slowing down and could slow down further over the next year or two.

Phoenix MSA Electricians’ Employment Market Size: $511 million in 2018

Phoenix Metropolitan Statistical Area (MSA), also known as Phoenix-Mesa-Scottsdale MSA as per United States Office of Management and Budget is comprised of Maricopa and Pinal counties. Electricians in the Phoenix MSA have benefited from the healthy economic conditions and supportive demographics. Overall, the electricians’ employment market size[1] was $511 million in 2018, clocking an impressive 19.7% YoY growth. Interestingly, the helper-electricians’ segment grew at a much higher pace (31%). Possibly due to limited availability of expert qualified electricians, which in turn could have boosted the demand for helper-electricians.

Short supply of electricians is a more significant national trend with a severe shortage of both skilled and unskilled labor. In a January 2017 survey conducted by the Associated General Contractors of America, 73% of businesses said they “had a difficult time finding qualified workers” and 55% rated “worker shortages as a bigger concern than federal regulations (41%)” and “low infrastructure investment (18%)”. Further, economists studying the challenge believe that the shortage may worsen unless specific corrective measures are undertaken on a wide scale. [2]

Electricians Market Size in Phoenix MSA, 2017- 2018 ($) (Source: BLS)

Source: BLS
*Calculated as a product of electricians’ “employment” and “annual mean wage” statistics as reported by BLS for the months of May 2017 and May 2018 respectively.

NUMBER OF ELECTRICIANS EMPLOYED GREW SHARPLY IN PHOENIX MSA

A comparison of the latest available statistics on electricians’ employment and wages: May 2018 vis-à-vis May 2017, reveals a sharp 22% YoY increase in the number of electricians employed in the MSA. This is significantly higher than the 8% YoY increase in the number of electricians in the rest of Arizona in May 2018. Growth in the number of electricians at the national level was much lower at 3.9%.

Electricians Employment and Wages in Phoenix MSA, May 2017 vs. May 2018

HELPERS-ELECTRICIANS’ ANNUAL WAGES INCREASE, EXPERIENCED ELECTRICIANS’ DECLINE

Electricians’ annual mean wages in Phoenix MSA are a tad higher than that of the state of Arizona, however considerably lower (23.2%) than that of the annual mean wages of electricians at the national level. On the flip side though, the annual mean wages of helper-electricians in Phoenix MSA is a tad (1%) higher than that at the national level.

In the Phoenix MSA, there has been a significant (10.3% YoY) increase in the mean annual wages of helper-electricians in May 2018 as compared to a slight (2.9% YoY) decline in the mean annual wages of qualified, experienced electricians even though the hourly wage rates of experienced electricians increased by 2.6% YoY. This is in contrast with the national trend, in which there was a 6.6% increase in qualified electricians’ annual mean wages as compared to a 2.8% increase in helper-electricians’ annual mean wages during the same period.

The above could be due to a greater supply of experienced electricians in the MSA as compared to that at the national level. There was a 22.1% YoY increase in the number of qualified electricians as compared to 18.7% YoY increase in the number of helpers-electricians in May 2018. The trend was exact opposite at the national level, experienced electricians: 3.9% YoY increase, grew at a slower rate than that helpers-electricians: 4.7% YoY increase.

ELECTRICIAN DEMAND-SUPPLY MARKET RATIOS / METRICS

To compare electricians’ demand vs. supply metrics in the Phoenix MSA market, we have calculated specific ratios that take into account factors such as population, households, construction spending, and income.

Demand Supply Metrics, Phoenix MSA and US, 2018

Source: US Census Population, BLS, Statista, US Census Income

Construction:

There is higher construction spending per electrician in the Phoenix MSA when compared to the national average. This indicates that the number of electricians available in Phoenix MSA, given the level of construction spending is less than the national average. With lower supply of electricians as compared to the demand, the number of electricians in the MSA is likely to witness further growth in the future.

Income:

With a lower per capita income to electrician wages ratio, electricians in Phoenix MSA are more expensive as compared to that at the national level. This indicates that there is limited scope for any significant increase in electricians’ annual mean wages in Phoenix MSA in the near future.

There “electrician density”, measured by population per electrician ratio, is higher in the MSA than that at the national level, primarily due to higher per capita construction spending.

Market Drivers, Inhibitors and Trends

ROBUST CONSTRUCTION SECTOR

Overall, the construction spending in Phoenix MSA grew at an impressive 9.2% CAGR during 2014-2018, further it is projected to grow at 7.1% CAGR during 2018-2021. Residential sector is the largest segment, it accounted for 47% of the MSA’s total construction spending in 2018. When compared to other segments, residential segment grew at the fastest CAGR of 14.1% during this period. Infrastructure, the second largest segment, grew at 4.0% CAGR. Commercial segment, the third largest, grew at 11.2% CAGR, thus ranking second among all segments in terms of growth.

Construction Sector Spending in Phoenix MSA, 2014-2021F ($ million)

The high growth in construction spending is driven by rising employment, high backlog construction volume, and healthy infrastructure investments. The growth to an extent is being constrained by the continued shortage of skilled labor, which is leading to increase in construction costs.

In the corporate sector, there is a high demand for ready-to-move spaces. Industrial development is robust and is being driven by the opening of the Loop 202 South Mountain extension. Retail sector growth is supported by projects such as Scottsdale Fashion Square and the development of several notable shopping outlets. The residential sector growth is benefiting from reinvestment and reinvention, with denser housing options and live/work/play developments.

Healthcare sector is also very active, with major developments such as the Maricopa Integrated Health System’s Roosevelt campus redevelopment, the Mayo Clinic’s capacity expansion, Banner’s 40-year expansion plan in the Phoenix metro area, and Dignity Health’s projects at Chandler Regional Medical Center and Mercy Gilbert Medical Center.[3]

Key Construction Projects Currently Underway in Phoenix MSA

The above trend of robust construction pipeline in Phoenix MSA and Arizona on the whole is further supported by a data and analytics firm, GlobalData which conducted a thorough study on construction projects pipeline across all the US states. It tracked more than 11,000 large-scale construction projects in the first half of 2019 across US. Its study revealed that 10 US states account for about 60% of the total US construction project pipeline value ($3.7 trillion). Arizona featured at the 16th spot in this list of Top 20 states with a project pipeline of about $70 billion.[4]

WORKERS SHORTAGE: DELAYING PROJECT COMPLETION

Arizona has been facing construction workers shortage over the past few years as the construction sector has recovered post financial crisis. A November 2018, Arizona Real Estate Notebook study revealed that real estate prices in the State reached its housing market peak achieved in 2006. Industry participants and observers point out that many construction workers left Arizona, as they found work in other cities or states during the recession and did not return since then.

One of the stakeholder/contractor in the Arizona construction sector, Dan Puente – Founder and CEO of DP Electric, noted during the survey that: “The labor shortage in the construction industry in Arizona has been an issue for quite some time and does not seem to be getting any better.”

The situation was so intense that competing contractors in a bid to complete work on schedule attempted to lure workers from other projects with higher wages and attached incentives. The trend was prevalent among both general contractors and subcontractors.

Contractors were hence struggling to meet both the cost and deadline of the work undertaken due to the labor shortage and higher wages. Typically contractors agree to a cost per project six months, a year or in some cases even two years in advance. And even though the cost accounts for inflation, such intense competitive practices leads to increase in costs beyond the accounted level.

Further, developers and owners continue to exert pressure on contractors to complete projects by the committed date as they strive hard to remain profitable or achieve targeted profit.

And according, to Puente electrical contractors feel even more pressure and blame for delayed projects because among all contractors, electrical contractors are the first to begin work on a project and the last to finish. Even though logically, the electrical installation should take place after the framing is complete, general contractors on a tight schedule insist on starting electrical work before frame completion.[5]

The situation is almost similar in the residential real estate market as well, which has been significantly affected. Michelle Noel, a real estate professional for 14 years, mentioned that “We are feeling big impact because of the result of the lack of workers. It’s actually taking anywhere from six to eight months for a home to be built where it used to be three to four months.”

Michelle also confirmed that poaching of workers is as rampant in the residential segment as it is in the commercial segment. She further noted that this is especially benefiting laborers who are self-employed, that is not working for a contractor. Because such workers can do two shifts, one in the morning and one at night and can work on the weekends as well to maximize earnings.

Further, Phoenix’s population growth is exerting as much pressure on contractors. Mentioning the source locations, Michelle explains the reason for migration into Phoenix as “We do get a lot of the people that are moving from higher cost locations such as California and even the East Coast. You have the weather factor. Some folks are not in the position to stay in those colder climates, so they’re moving here”.[6]

FAVORABLE DEMOGRAPHIC FACTORS

Phoenix MSA is benefiting from strong and steady population growth, largely driven by net inward migration and also due to a higher than national average share of young population. Further more people are entering the workforce, as the unemployment rate is falling and boosting consumption in the MSA.

Population Growth: More People for Electricians to Serve

Per US Census Bureau, population in the Phoenix-Mesa-Scottsdale MSA, which includes Maricopa County and Pinal County, was 4,857,962 in 2018. This is equivalent to 67.7% of the Arizona State’s population of 7,171,646 in 2018.

In terms of population, Phoenix MSA has consistently featured among one of the fastest growing areas in the US. The area’s average compounded annual growth rate (CAGR) at 4.3% during 1990-2017 has outpaced that of the US and the trend has been such since 1980. Further, the population is projected to continue to grow at higher (CAGR 1.6%) than national growth rate during 2017-2050.[7]

Phoenix MSA Ranked Second for its Population Growth in US, Maricopa County Leads

The Phoenix-Mesa-Scottsdale metropolitan area ranked second in terms of population growth among all metropolitan areas in US in 2018, with a net migration 96,268 people. This marks an 8.1% increase in the number of net migrants, when compared to 89,000 net migrants in 2017.

Maricopa County in Phoenix MSA, has been the primary driver of this trend. Led by migration growth, it ranked first among all counties in the US in terms of population growth. As many as 81,244 people moved into the county during July 2017-June 2018, up from 74,000 people during July 2016-June 2017.

This was the third consecutive year that Maricopa County among all the counties ranked first in US in terms of population growth. As a result, Phoenix MSA also ranked second among all MSAs in US in terms of population growth and first in terms of migration growth in 2018.[8]

Younger Population, Higher Representation of Hispanics

Population in Arizona State as well as the Phoenix MSA is of lower median age than the national average. This is despite, both the State and MSA featuring high in the list of retirement communities at the national level. In 2017, the median age in Phoenix MSA was 36.7 years[9] as compared to 37.8 years[10] at the national level.

The population in Phoenix MSA is predominantly White and Hispanic/Latino, with 55.3% and 31.0% share respectively in 2017. Black or African Americans account for only 5.1% of the population. Further, 26.4% of the population speak a non-English language, and 91.6% are US citizens.[11]

There is a far larger representation of Hispanic/Latino population in Phoenix MSA as compared to that at the national level. At the national level, the share of Hispanic/Latino population is much lower at 18.3%, while that of White population is much higher at 76.5%.[12] As much as 58% of the population in the MSA is of working age (20-64 years age bracket). These factors bring more diversity and size to the work force in Phoenix MSA.[13]

Falling Unemployment Rate

According to the Bureau of Labor Statistics (BLS), Phoenix MSA accounts for the majority (70%) of the employment in Arizona. Employment in the MSA increased 3% YoY in April 2019, and as a result the number of people in the labor force went up to 2.45 million.

The unemployment rate declined to 3.7% as compared to 3.9% in April 2018. Growth in Phoenix MSA, outpaced that of the rest of Arizona by a significant margin: Employment in the rest of Arizona grew at a much lower 1.4% YoY and the unemployment rate was higher at 5.2% in April 2019.

Employment in Phoenix MSA and Arizona, Apr. 2018, Apr. 2019

SUPPORTIVE ECONOMY

Phoenix MSA has witnessed strong economic growth rate of over 4% per year during the past 5 years. This has led to increase in per capita income as well, however the rate of growth has been lower than the growth in GDP. Which could be a result of increase in migrant population whose income levels are on the lower end of the spectrum as well as consumer spending at a rate higher than the growth in income. Interestingly, the share of real estate in GDP has been increasing and could be the area where consumers are ending up spending at a higher rate than the growth in income.

Rising Per Capita Income: More Money at Disposal

The per capita income in Phoenix MSA grew at a 3.4% CAGR during 2010-2017, posting a sharp recovery from the global financial crisis that led to 2.7% decline per capita income in 2008 and as much as 8% decline in 2009. In 2013, per capita income in the MSA had recovered back to the level it had reached pre-crisis in 2007.

Per Capita Income in Phoenix MSA (2005-2017), $

Source: U.S. Bureau of Economic Analysis

The per capita income in Phoenix MSA is skewed by the fact that there is a significant amount of migration taking place. And typically the migrant population needs time to move into a higher income bracket. And hence, the overall growth in personal income becomes more relevant. During 2010-2017, total personal income in Maricopa and Pinal counties, registered a CAGR of 5.2% and 5.3% respectively. This drove the combined annual personal income of the two counties to $209 billion in 2017, up from $146 billion in 2010.

Overall Personal Income in Maricopa and Pinal Counties (2005-2017), $B

Robust Economic Growth and Increasing Share of Real Estate

Current GDP in Phoenix MSA grew at an impressive 4.4% CAGR during 2010-2017, while the real estate component grew at an even higher rate of 4.8%. The contribution of real estate to GDP in 2016 reached 15.6%, up from 14.0% in 2005. The contribution had peaked at 16.1% in 2009 and since then kept declining to reach 14.2% in 2012. Since then, it started increasing and reached 15.6% in 2016. This likely represents the increase in either or both of property sales and property prices.

MSA Current GDP and Real Estate Contribution to GDP in Phoenix MSA (2005-2017), $B

While increase in property sales benefits electricians, increase in prices starts to affect property buyer spending on improvement post purchase. And beyond a certain point, the increase in prices start affecting the property sales, further negatively impacting the demand for electricians.

Decline in Property Sales in Phoenix City Spells Caution

Below we compare the trend in property sales and property prices in Phoenix city using information from Trulia. The median sales price of the properties in Phoenix city has increased from $173,000 in June 2014 to 247,000 in June 2019, clocking a CAGR of 7.4%. This is despite the fact that the price has remained at about the same level over the past year. Clearly, the property prices have outpaced the rate of growth in personal income by a wide margin. And the property prices are struggling to increase further.

Phoenix City All Properties Median Sales Price (Jun. 14-Jun. 19)

The property sales in Phoenix city during the same period, June 2014-June 2019, grew from 5,170 to 6,357, registering a 4.2% CAGR, which is also considerably lower than the rate of increase in prices. In fact the property sales have been declining in 2019.

Property sales have followed a monthly sales cycle each year peaking in June and bottoming in February. In June 2019, the property sales reached its bottom at 4,379 units, which is lower than the bottom levels achieved in 2017 and 2018 and only slightly above that achieved in 2016. And given the trend, the property sales have likely peaked at 6,537 units in June 2019, which is lower than the peaks achieved in 2016, 2017 and 2018.

Phoenix City All Properties Sales (Jun. 14-Jun. 19)

To conclude, the property prices are stabilizing as the property sales have declined YoY in 2019 till now, by as much as 6%. This could in the long term slow down the construction activity in the city and negatively influence the demand for electricians. The real estate market has quite apparently entered a consolidation phase as the fall in property sales has also led to marginal decline or steadying of property prices at current level.

Ideally, for the market to remain healthy, the property prices should not increase till the point when property sales start increasing again. A healthy correction in property prices though would be an even positive sign for electricians as the property sales will then likely sooner than later crawl back to the peak level.

Political Push for Solar Power in Arizona: Could Open Opportunities for Electricians

The Phoenix MSA / Arizona in general is located in the Sonoran Desert of the American Southwest. Arizona is the sunniest state in US, with more than 300 sunshine days per year. Further, it is projected to have an additional month of hundred-degree days in the coming decades owing to climate change. There has been a rapid decline in the solar-energy technology and battery storage costs to a level that it now frequently outbids fossil fuels and even natural gas. Despite this, in 2017, Arizona generated only 6% of its electricity from solar. The state currently needs utilities to generate 8% of their power from alternative / green sources such as solar and wind, scaling up to 15% by 2025.

Natural gas, is the largest source of Arizona’s net electricity generation and is imported from outside the state. D. J. Quinlan, a spokesman for Clean Energy for a Healthy Arizona, the Phoenix-based political-action committee, notes that “Our most abundant resource in Arizona is our sunshine. We need a nationwide transition to renewables. One of the first places we should be doing it is where it’s most efficient and cost-effective, and that’s here.”[14]

There is certainly a push for increasing contribution of solar energy in Arizona and this could open up new opportunities for electricians. Another interesting trend is that more than 30 States now require that at least one licensed electrician to be present at solar installations. Further, some states also set ratios for the number of unlicensed installers to each licensed electrician. For example, in Minnesota, a journey- or master-level electrician must perform all electrical work on a PV system, and the worksite must adhere to a ratio of one licensed electrician to every two unlicensed.

Such requirements have placed further burden on solar companies who are now competing with other industries for experienced electricians, and often have to hire them from out of State. The extended hiring process is also slowing solar installations. In the 2018 census, 22% companies ranked electricians as the most difficult position to fill (in Minnesota, it was 43%).

Most Difficult Positions to Fill in 2018

For electricians, solar installations is one of the more difficult jobs to perform as it requires outdoor work and exposure to the elements. Also, the past experiences of ups and downs in the solar industry deters some electricians from entering the industry.[15]

Typically, the solar installations in non-residential and utilities sector are sporadic, as such installations happen on need basis. However, installations in residential sector are a good indicator of long-demand for solar energy. And the capacity of solar installations in Arizona’s residential sector has been consistently growing.

The residential annual solar capacity installations have increased form around 20MW in 2010 to nearly 200MW. This indicates persistent demand for solar power among residential consumers in the State. And hence, most likely sustainable opportunities for electricians.

Arizona Annual Solar Installations, 2010-2019 (MW)