The responses for our 1st Quarter Construction Data Index (CDI) are in and future outlook for the commercial construction industry is at an all-time high as we move forward in 2014 and the construction season shifts into high gear.
Despite having to deal with winter storm after winter storm that lasted all through the first quarter, the commercial construction industry relatively unscathed. The construction industry added 51,000 jobs in January, 18,000 jobs in February and 19,000 jobs in March according to the Bureau of Labor Statistics. As of March, construction employment has risen by 151,000 jobs over the past year.
The harsh winter didn’t appear to slow down construction spending which according to the U.S. Census Bureau was at $945.7 billion during February 2014 which was 8.7 percent higher than the $869.9 billion for February 2013. January 2014 construction spending was adjusted to $944.6 billion which is 9.4 percent better than January 2013 which was at $863.1 billion. The total value of construction in 2013 was $899.2 billion which was which was 4.9 percent higher than the 2012 amount of $857 billion. Construction employment and construction spending both grew in 2013 and that trend is expected to continue through 2014.
When asked how your business is doing today relative to six months ago, 50 percent of respondents indicated that their business was doing better. Only 29 percent of respondents felt their business was doing about the same as it was six months ago and 21 percent felt that business was worse than it was six months ago. Looking back at the results from 1st Quarter 2013 we had 49 percent respond that business was better, 39 percent said business was about the same with 12 percent responding that business was worse than it was six months prior.
Future outlook for 1st Quarter 2014 reached a record high of 69 percent of respondents stating that they feel business their business will be doing better six months from now. This is the highest level of optimism the CDI has recorded since its inception in 2012 and surpasses the previous high-water mark of 64 percent set back in 3rd Quarter 2013. Respondents who felt business would be about the same six months from now was at 24 percent with 7 percent of respondents stating that they felt their business would be doing worse than it currently is.
This was a big improvement over 4th Quarter 2013 responses where 60 percent felt their business would be doing better six months in the future. The percentage of respondents who felt their business would be doing worse was up slightly from the 7 percent recorded during the previous quarter and a decrease in respondents who felt business would be about the same. This is a good sign since 2013 was a year of growth for the commercial construction industry and only and 61 percent of respondents during 1st Quarter 2013 felt their business would be better further down the road that year.
Taking a look at some of the other industry-leading indicators, 2014 should be a good year for the construction industry with continued recovery. FMI’s Nonresidential Construction Index Report for 1st Quarter 2014 achieved its highest score ever recorded with 64.7 points. This is 7.5 points higher than the 4th Quarter 2013 score of 57.4 and 6.8 points higher than the 1st Quarter 2013 score. This tops the previous high mark of 60.3 set in 3rd Quarter 2013. For the NRCI, any score above 50 indicates expansion, while any score below 50 indicates contraction.
FMI’s Construction Outlook 1st Quarter 2014 construction forecast is in the “cautiously optimistic zone” with total construction-put-in-place expected to grow at a rate of 8 percent in 2014. All market sectors are expected to grow in 2014 with multifamily construction being the big winner with a 27 percent increase forecast predicted this year.
The American Institute of Architects’ Architecture Billings Index indicated an increase in billings for the first two months of the quarter, bouncing back from a disappointing December of 48.5. January clocked in at 50.4 and rose to 50.7 in February. For the AIA’s index, a score of 50 indicates no change from the previous survey period. Scores above 50 indicate an increase and scores below 50 indicate a decrease in billing.
For the Architecture Billings Index, only the South and West regions showed an increase in billings while the Midwest and Northeast had decreases during the first two months of the year. The Commercial/Industrial and Residential sectors both showed increases with the Institutional sector decreasing during January and February.
The commercial construction industry is on solid footing after the first quarter of the year. The winter that appeared to have no ending in sight finally came to a close. Construction spending for the first two months of 2014 is 8.9 percent above amount spent for the same period of time in 2013. The industry has added jobs every month of the quarter and every industry indicator is pointing to continued growth throughout the remainder of 2014.
Unlike past editions of the CDI, there doesn’t appear to be any major stumbling blocks the industry will have to sidestep in the coming months. The deadline for individuals to get health insurance under the Affordable Care Act has come and gone so it may be a few months until we see if that has any impact on the construction industry. The biggest challenge for construction companies in 2014 could easily be finding enough skilled workers to keep up with the growing demand for construction. Every week there seems to be more news reports about skilled worker shortages in one area or another in the country. This skilled worker shortage will only continue to grow unless the industry as a whole starts taking steps to reverse this trend.
About the CDI
The Construction Data Index (CDI) is a user-based forward-looking survey of the commercial construction industry. The index is a forecast tool that predicts future outlook for general contractors, subcontractors, and building material suppliers.
The CDI is designed to help firms answer one simple question: According to industry professionals like myself, are things getting better or worse? In order to obtain the data for this index, Construction Data surveys professionals working in the commercial construction industry on a monthly basis. The survey asks two questions:
- How is your business doing, relative to six months ago?
- How do you see your business doing six months from now?
Results are measured on a five point Likert scale: with 5 – much better, 4 – a little better, 3 – the same, 2 – a little worse and 1 – worse.
The CDI’s concept is similar to the AIA’s Architectural Billings Index, the ABC’s Backlog Indicator, and NAIOP’s Industrial Space Demand Forecast. The CDI is forward looking and an indicator of how commercial construction project companies view their industry’s future. The CDI provides a view of how contractors view their own industry now and what they see as their prospects for the future.