Construction Economic Data Signals Continued Growth in the Industry

Some of the industries leading economic indicators continue to show cautious optimism for growth in the industry through the remainder of 2013 and through 2014. Below is a number of leading industry indicators to discuss the current economic conditions for construction.

CONSTRUCTION BACKLOG INDICATOR

Associated Builders and Contractors (ABC) today reports its Construction Backlog Indicator (CBI) rose 3.9 percent during the second quarter of 2013 and now stands at 8.2 months, up from 7.9 months the previous quarter. Construction backlog is up 6.6 percent compared to the same time last year. CBI reflects the amount of commercial and industrial construction work under contract, but not yet completed.

Regional Highlights

• Northeast experiencing backlog expansion from 7.28 months to 9.41 Months

Industry Highlights

• Industry-specific data reflect the contrast in nonresidential construction spending patterns, with privately financed segments generally outperforming publicly financed segments.  
• Construction backlog in the infrastructure segment has declined for two consecutive quarters and is more than 1 month below last year’s second quarter level. 
• While construction backlog expanded in the heavy industrial segment during the second quarter, the most sustained progress has been observed in the commercial and institutional category, which is most directly aligned with household spending. 

Highlights by Company Size

• Larger firms continue to capture market share. Backlog among surveyed contractors associated with more than $100 million in annual revenues is now approaching 12.3 months, which represents roughly a 50 percent increase in backlog since late 2009.
• Firms with less than $30 million in revenue, a group heavily comprised of subcontractors that specialize in a handful of disciplines, also rose in the second quarter, but remains proximate to year-ago levels.
• The group exhibiting the least momentum are contractors with between $30 million and $50 million in annual revenues. These firms are often competing directly with larger contractors with a greater ability to develop and retain talent, as well as solidify key banking and insurance relationships.

ENR CONSTRUCTION INDUSTRY CONFIDENCE INDEX (CICI)

CICI measures executive sentiment about the current market and reflects their views on where it will be in the next three to six months and over a 12 to 18 month period.

• The second –quarter 2013 CICI rose to a record 69 points on a scale of 100, which represents a growing market
• Virtually all the market sectors measured by the CICI are now in growth mode.
• For the first time, all market sectors had a CICI rating over 50, indicating expected market growth over the next 18 months.

FMI CONSTRUCTION OUTLOOK REPORT

The report details Construction Put In Place (CPIP) in three residential building, 11 nonresidential building and five non-building structure categories.

• Annual CPIP predictions shrink to $909 billion in Q3 2013 from $913 billion in Q2 2013.
• Although prediction is down from Q2 2013, overall growth is 6% from 2012.
• FMI does expect growth to return to 7% in 2014 with annual CPIP reaching $977 billion.

Major market predictions include:

• Residential Construction — FMI continues to forecast traction in residential construction. However, the growth is expected to taper off to 12% in 2014. Total predicted residential forecast is $379.6 billion, compared with the $338.2 billion for 2013.
• Commercial Construction — The current forecast calls for a 5% increase in 2014. Although retail sales as of June 2013 were up 5.7% over the previous year, new bricks and mortar retail space along with commercial other construction growth will remain slow to recover.
• Healthcare —With business owners nervous about the costs of the Affordable Healthcare Act, predictions are slightly unstable. Although the healthcare construction forecast slipped 1% since last year, it is still expected to grow 6% in 2014 to $44 billion.
• Educational — The increase in residential construction and tax revenues will help bring this market back in many areas of the country. Due to budget cuts for government spending at all levels, the national market will rise only slightly in 2014 to 4% over 2013 levels.
• Manufacturing — The resurgence of the automotive industry is a big boost to manufacturing as is the continuing explorations and mining for shale oil and gas. However, manufacturing construction is expected to drop 2% by year-end 2013 before returning to 4% growth in 2014.
• Highway and Street — Passage of MAP-21 calls for nearly $38 billion for the fiscal year 2014 for the Federal-Aid Highway Program. This is a major contributor to the CPIP predications of nearly $80 billion for 2014.

ARCHITECTURE BILLING INDEX (ABI)

The ABI is an economic indicator that reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The ABI index scores are centered around 50, with scores above 50 indicating an aggregate increase in billings, and scores below 50 indicating a decline in billings.

The American Institute of Architects (AIA) reported the September ABI score was 54.3, up from a mark of 53.8 in August. The new projects inquiry index was 58.6, down from the reading of 63.0 the previous month.

• Regional averages: West (60.6), South (54.1), Midwest (51.0), Northeast (50.7)
• Sector index breakdown: commercial / industrial (57.9), multi-family residential (55.6), mixed practice (55.4), institutional (50.4)
• Project inquiries index: 58.6

CONFINDEX QUARTERLY READING

CONFIDENX is a leading economic indicator of the health of the commercial construction in the US. CONFINDEX is CFMA’s proprietary confidence index survey of CFO’s in the commercial construction sector.

• The overall CONFINDEX has remained flat in 2013 holding at an average of 128.
• The index is up 3.2% from a year ago.
• Results are consistent with expectations for continued gradual construction industry recovery.

2014 FORECASTS

Long term outlook for the construction industry continues to show slow and steady growth through 2014 and into 2015.

Major Association forecasts from ABC, CFMA and AGC are due out in late November and December for 2014. All signs are pointing to growth for 2014.

Other indicators such as job growth and construction spending growth are solid signs for a strong 2014.

To learn more about how these economic indicators can effect your specific construction business, please contact the construction professionals of McKonly & Asbury.