We’re a little more than halfway through the year and judging by the results of our 2nd Quarter Construction Data Index (CDI), a large majority of construction firms will see a strong finish to 2015. Based on responses to our latest survey, only 3 percent of construction professionals feel that their business will be doing worse over the next six months. That’s a record low since the inception of the CDI. With construction spending reaching pre-recession highs over the last couple of months, it’s no surprise that 97 percent of respondents feel that business will be as good as, or better, over the next six months.
The construction industry added 45,000 jobs during the 2nd Quarter of 2015, according to the Bureau of Labor Statistics. The industry added 30,000 jobs in April and 15,000 jobs in May, but saw a net-zero gain in June. Total construction employment currently stands at 6,380,000 jobs. This is an addition of 105,000 during the first half of 2015, with 259,000 jobs added over the last 12 months. Construction unemployment has dropped to 6.3 percent at the end of 2nd Quarter 2015 which is a good sign, as it had gotten as high as 10.8 percent back in February.
Construction spending has increased every month so far this year with April seeing the annual rate of construction spending top the $1 trillion mark in over six years. The seasonally adjusted rate of construction spending was at $1,035.8 billion in May, the highest it’s been since October 2008. According to the U.S. Census Bureau, construction spending has increased 4.7 percent in 2015 and is up 8.2 percent since May 2014. Non-residential private construction spending was at $392.8 billion in May and $387.1 billion in April. Public spending was at $283.4 billion in May and $281.5 billion in April.
What a difference a few months make. The construction industry seems to be back on solid footing with 61 percent of respondents indicating that their business is doing better now than it was six months ago. During our 1st Quarter CDI survey, less than half, 49 percent reported business was doing better than six months prior. Thirty-one percent of respondents indicated that business was about the same over the past six months with only 8 percent indicating they are doing worse now.
When asked how they feel their business will be doing six months from now, 67 percent of survey respondents indicated their business would be doing better. As mentioned earlier, only 3 percent of respondents felt their business would be doing worse six months from now. Thirty percent of construction professionals stated that business would be about the same six months from now.
Now we’ll take a quick look at some of the other leading indicators for the commercial construction industry to see what’s in store for the remainder of the year.
FMI’s Nonresidential Construction Index Report for 2nd Quarter 2015 was at 64.9. This is up just a hair from the 64.8 points from 1st Quarter, but down from the 65.8 from 2nd Quarter 2014. Any score above 50 indicates expansion, while any score below 50 indicates contraction.
FMI’s 2nd Quarter 2015 Construction Outlook is still predicting continued growth for the year, but at a more moderate pace for in construction put-in-place from the 8 percent they were forecasting earlier this year. They are now projecting construction put-in-place to be at $1,012 billion for the year, which is a 5 percent increase over 2014.
Similar to what we saw in the 1st Quarter, The American Institute of Architects’ (AIA) Architecture Billings Index (ABI) score faltered in April to 48.8, only to bounce back up to 51.9 in May. New project inquiries had risen to 61.5 in May over April’s score of 60.1. The ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending and any score above 50 indicates an increase in billings and any score below 50 indicates a decrease in billings.
The Turner Building Cost Index, which measures nonresidential building costs, was at 938 for 2nd Quarter 2015, 1.19 percent above the 927 recorded for 1st Quarter 2015. This is an increase of 4.7 percent from the 2nd Quarter 2014 score of 896.
There is every indication that this year will be an improvement over the prior year for the commercial construction industry, just as it has been for the past couple of years. The one dead horse that will get dragged out and beaten again is Congress trying work out a solution for surface transportation projects as the Highway Trust Fund (HTF) is set to yet again become insolvent by the end of this month. A long-term fix isn’t out of the question with support growing to find something more sustainable than another two-year reauthorization bandage, but with just a few short weeks to work something out it seems unlikely. It’s something to keep an eye on, but letting the HTF expire doesn’t appear to be a plausible scenario even if a long-term solution can’t be agreed upon.
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.
If you would like to participate in future CDI surveys, please email us email@example.com.