The 4th Quarter Construction Data Index (CDI) has been compiled and while future outlook did not reach the record high we had last quarter, based on the responses received, a majority of construction companies should see an improvement in business in the first half of 2014. Despite a positive outlook for the future we did see a large drop in how companies felt their business was doing relative to six months ago compared to the 3rd quarter responses. Some of that can be attributed to the regular seasonal slowdown the industry typically experiences. In fact the numbers were very similar to the responses we received in the last quarter of 2012. In addition to the expected seasonal slowdown we started off the quarter dealing with a shutdown of the federal government in October and ended December with unusually cold weather throughout the country.
Looking back on the year the construction industry continued to grow and improve as the year progressed. According to the U.S. Commerce Department the value of construction put in place for November 2013 was at an annual rate of $934.4 billion which is a 5.9 percent increase from November 2012 and a 1 percent increase from the previous month. This is the highest it has been since March 2009 and reflects the eighth straight month of increases. December construction employment was disappointing with 16,000 jobs lost and unemployment in the industry jumping up to 11.4 percent. This is contradictory to the payroll service company ADP which reported gains of 48,000 for the construction industry in December. We will have to wait until numbers for January are released to see if the Bureau of Labor Statistics revises their numbers. It’s not all doom and gloom as the industry added 122,000 totals jobs for the year which averages out to about 10,000 jobs added every month in 2013.
When asked how your business is doing today relative to six months ago, 45 percent of respondents indicated that their business was doing better. This was followed by 35 percent of respondents felt their business was doing about the same as it was six months ago and 20 percent felt that business was worse than it was six months ago. As mentioned earlier this is very similar to the responses received for the 4th quarter of 2012 with 40 percent stating business was better, 40 percent reporting it was about the same and 20 percent stating business was worse.
Unlike the responses received in the 3rd quarter where we had an increase in the number of companies who felt business was better and a decrease in the number who felt business was worse as compared to the previous quarter we experienced the opposite for the final quarter of the year. Those that felt their business was doing better dropped from 58 percent to 45 percent and those that felt their business was doing worse than six months ago jumped from 14 percent to 20 percent. Again, the seasonal slowdown compounded with the government shutdown and colder than normal temperatures all contributed to this decrease in confidence.
Future outlook from the 4th Quarter CDI dipped slightly from the previous quarter but remained strong with 60 percent of respondents stating they feel business will be better six months from now. The other positive sign of note is the fact that respondents who felt business would be worse six months from now dipped back down to 9 percent which is just slightly lower than the 10 percent reported last quarter.
Despite some small up and down from quarter to quarter, future outlook remained positive all year with the percentage of respondents who felt business would be better in the next six months well above 50 percent every quarter and averaged just above 60 percent for the entire year. This is a good sign as we look forward to 2014.
Other industry-leading indicators are showing a small downturn for 4th Quarter 2013. FMI’s Nonresidential Construction Index Report for 4th Quarter 2013 dropped to 57.4 after hitting 60.3 for the third quarter. While this is a bit of a step back from the previous quarter any score above 50 indicates expansion, while any score below 50 indicates contraction.
According to FMI’s 2014 U.S. Markets Construction Overview they still have Construction-Put-In-Place (CPIP) for 2013 at $909.6 billion. They are still predicting growth for 2014 is set to return to 7 percent and reach $977.1 billion CPIP.
The American Institute of Architects’ Architecture Billings Index also slid down below 50, hitting 49.8 in November after being at 51.6 for October. There was growth in all regions except for the Northeast which fell to 49.7 in October and slipped to 57.5 in November. All three sectors showed growth in October but only Residential had growth in November at 55.2. 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.
So 2013 stumbled over itself a bit during the final quarter of the year after being hit with a 16-day federal government shutdown to start October and finishing with a loss of jobs in December due to colder than normal temperatures affecting most of the country. Already in January we’ve been smacked in the face with the polar vortex with another round of colder than normal temperatures and winter storms hitting this week. The one bright spot to kick off the year so far has been the passage of a $1.1 trillion spending bill by Congress last week with good news for the construction industry. The Consolidated Appropriations Act, 2014, will provide more funding for construction projects than previously provided through sequestration cuts. Most notably, the U.S. Army Corps Civil Works will get $723 million in funding for construction projects and the General Services Administration will receive $1.5 billion for construction projects.
The construction industry is going to continue to improve in 2014 and will be led mostly by private sector investment for construction projects while the public sector will have some growth with the recent spending bill being approved as well as the potential for funding from Water Resources Reform & Development Act. State and municipal construction spending will likely remain flat in 2014 due to an overall lack of funding. Even with public construction spending stalling, the private sector should increase enough in the New Year to create growth for the industry.
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, CDCNews surveys professionals working in the commercial construction industry on a monthly basis. The survey asks two questions:
- 1. How is your business doing, relative to six months ago?
- 2. 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.