Construction industry leaders’ confidence decreased in July amid rising materials prices, labor shortages and the COVID-19 pandemic, according to www.abc.org.
All three components fell in July but remained above the diffusion index threshold of 50.
In July, the Associated Builders and Contractors’ Construction Confidence Index decreased from 63.5 to 62.2 for staffing levels; 56.3 to 54 for profit margin expectations; and 65.7 to 62.2 for sales expectations.
Additionally, ABC’s Construction Backlog Indicator was unchanged at 8.5 months in July.
ABC Chief Economist Anirban Basu said although contractors remain optimistic, confidence dampened as backlog failed to expand in July.
“It remains the case that many purchasers of construction services are contemplating delaying project start dates in hopes of securing more favorable bids at some point in the future,” Basu said. “Despite that, backlog remains well above pandemic lows. Not only is the broader economy continuing to recover, but massive ongoing injections of liquidity and stimulus mean that investors are flush with cash. One way to deploy cash is to invest in real estate, whether purchasing existing structures in need of refurbishment or engaging in new construction. These large pools of liquidity help explain the elevated levels of demand for nonresidential construction services during a period of rising costs. That in turn helps explain the confidence that many contractors continue to exude despite multiple commercial challenges.
“There is at least one other factor that has helped to stimulate contractor confidence,” Basu continued. “A number of survey respondents indicated that they are observing less competition for projects. Many firms appear to have reached their capacity limits, and therefore are not able to bid on significant numbers of projects. At the individual firm level, the lack of substantial competition is consistent with stable or rising backlog. At the industry level, it is consistent with a lack of nonresidential construction spending growth as supply constraints make their mark. With firms racing to bolster delivery capacity, wages are predictably rising as contractors compete vigorously for talent. More than 75% of respondents expect to raise wages over the next six months.”
