The responses for our 2nd Quarter Construction Data Index (CDI) are in and to quote Led Zeppelin, “the song remains the same.” The results are nearly identical to the responses we received for our 1st Quarter CDI in regards to how respondents feel their businesses are doing relative to six months ago and how the see their businesses doing six months in the future.
The quarter started off strong with the construction industry adding 36,000 jobs in April, but only added 9,000 jobs in May and 6,000 jobs in June according to the Bureau of Labor Statistics. As of June, construction employment has risen by 186,000 jobs over the past year. While these numbers are not as good as those for the first quarter of the year, they are a large improvement over the number of jobs added in the construction industry for April, May and June of last year.
According to the U.S. Census Bureau construction spending was at $956.1 billion during May 2014 which was 6.6 percent higher than the $896.6 billion for May 2013. April 2014 construction spending was adjusted to $955.1 billion which is 8.7 percent better than April 2013 at $878.4 billion. The total value of construction for the first five months of the year was $358.1 billion which was 8.2 percent higher than the first five months of 2013 which was $331.1 billion.
When asked how your business is doing today relative to six months ago, 49 percent of respondents indicated that their business was doing better. Only 32 percent of respondents felt their business was doing about the same as it was six months ago and 19 percent felt that business was worse than it was six months ago. Looking back at the results from 1st Quarter 2014 we find that these responses are almost identical. Last quarter, 50 percent indicated that their business was doing better, 29 percent felt their business was doing about the same and 21 percent felt that business was worse than it was six months ago.
Future outlook for 2nd Quarter 2014 reached a record high for the second consecutive quarter with 70 percent of respondents stating that they feel their business will be doing better six months from now. Respondents who felt business would be about the same six months from now was at 24 percent with 6 percent of respondents stating that they felt their business would be doing worse than it currently is. Again, these responses were very similar to 1st Quarter 2014 with the percentage of respondents that felt business would be better in the future gained a percentage point with those feeling the future would be worse dropped by 1 percent. Respondents that felt business would be about the same six months from now remained at 24 percent.
We’ve hit the halfway point in the year so we’ll take a look at some of the other industry-leading indicators to get a sense of how construction industry has fared for the first half of 2014. FMI’s Nonresidential Construction Index Report for 2nd Quarter 2014 achieved its highest score ever recorded for the second consecutive month with 65.8 points. This is 0.9 points higher than the 1st Quarter 2014 score of 64.9 and 5.7 points higher than the 2nd Quarter 2013 score. For the NRCI, any score above 50 indicates expansion, while any score below 50 indicates contraction.
FMI’s Construction Outlook 2nd Quarter 2014 construction forecast remains in the “cautiously optimistic zone” that it was in last quarter but has dropped by 1 percent with total construction-put-in-place expected to grow at a rate of 7 percent in 2014. The first quarter report had construction growing at a rate of 8 percent.
The American Institute of Architects’ Architecture Billings Index finally indicated an increase in billings for May after decreasing in March and April. May achieved a score of 52.6 after being at 49.6 in April. 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, the South region was the one bright spot showing a score of 57.5 in April and 58.1 in May. All the other regions were below 50 in April and the only other region above 50 in May was the Midwest with a score of 51.3. The Commercial/Industrial and Residential sectors both showed increases with the Institutional sector decreasing during April and May.
As we head into the second half of 2014 it appears that the commercial construction industry is on solid footing and will continue to grow. Construction spending has increased every month of the year and the industry has added jobs every month. The industry’s unemployment rate is currently at 8.2 percent for June which is the lowest it has been in June for six years. If all indicators are correct, the construction industry should continue to gradually grow for the remainder of the year.
The only speed bump on the horizon is the slim possibility of the Highway Trust Fund (HTF) becoming insolvent. Don’t expect a long-term, permanent fix to the ever-depleting HTF which would probably require some increase to the gas tax and we all know that won’t even be considered in an election year. Not to worry, both the House and Senate are currently working on more short-term Band-Aids to slap on this problem and keep all those highway and transit projects funded through May 2015. The construction industry would definitely take a hit if funding for highway projects dried up, but this isn’t likely because Congress has a pretty good track record of coming to some sort of an agreement to keep the HTF solvent, if only for a little while longer.
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 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.