The latest Construction Confidence Index shows construction industry leaders remained confident in April regarding the nonresidential construction sector’s future, according to www.abc.org.
Although contractors were slightly less optimistic about sales expectations and staffing levels, more than 70% of respondents expect to increase sales during the next six months. Additionally, more than 56% of contractors expect profit margins to increase.
All three principal components measured by the survey—sales, profit margins and staffing levels—remain well above the diffusion index threshold of 50, signaling continued expansion in construction activity. In April, the CCI decreased from 69.6 to 68.4 for sales expectations; increased from 61.8 to 63 for profit margin expectations; and decreased from 67.8 to 67.4 for staffing levels.
“Many economists are convinced that the next recession will begin next year,” says ABC Chief Economist Anirban Basu. “While that is a possibility, there are presently no signs of recession in the nonresidential portion of the economy, as backlog remains elevated and demand for construction services continue to rise, especially in public construction segments such as water supply, flood control and highway/street.
“Remarkably, despite growing shortages of skilled workers and rising compensation costs, the average nonresidential contractor has been able to keep profit margins stable, with a significant proportion able to increase margins slightly,” Basu continues. “With bidding opportunities remaining robust and firms still in a position to chase opportunities to bolster revenues and profitability, it comes as little surprise that many contractors continue to hire. ABC’s most recent survey indicates that many more firms expect to expand payrolls in the coming months.”
Basu says rate cuts from the Federal Reserve could affect the construction industry.
“Presumably a rate cut or two in 2019 would further diminish the cost of capital, positioning more projects to move forward,” Basu says. “On the other hand, there is evidence that the U.S. economy has begun to slow, with the pace of job growth slowing recently along with more sluggish indications from measures such as industrial production and capacity utilization. Should the U.S. economy continue to slow through the balance of 2019 and into 2020, it would likely translate into meaningfully softer demand for construction services by 2021 or 2022.”
