CDCNews’ 2nd Quarter 2013 Construction Data Index

CDI_Header_2Q2013

With the first half of 2013 already in the rearview mirror, CDCNews’ 2nd Quarter Construction Data Index (CDI) has been compiled and a larger percentage of commercial construction professionals state their business is doing better now than it was six months ago as compared to the responses from the 1st Quarter CDI. Despite a slight dip, optimism also remains strong for future prospects through the end of the year based on responses industry professionals.

While the commercial construction industry continues to improve as the economy recovers, responses weren’t as positive as they were during the first quarter of the year. There was an increase in the percentage of respondents who felt their business was doing worse than it was six months ago as well as those who felt their business would be doing worse than it currently is six months from now.

Part of the reason for the increase in companies who state their company is doing worse than they were six months ago could be due to the fact that some areas of the country are recovering from the recession at a slower rate than others. This was evident in some of the comments received by respondents. In some markets contractors described the recovery as sluggish with only slight improvements being seen so far this year and in other areas there has been a large upswing in contracting opportunities and the demand for contractors and subcontractors. The general consensus is that while construction activity is increasing and the economy is improving profit margins remain thin.

As for the increase in the percentage of respondents who felt their business would be doing worse in six months compared to first quarter responses, part of that could just be due to the typical seasonal decline that occurs during the winter months and affects some of the regions and sectors served by the commercial construction industry. Roadwork and sewer/water commercial construction projects typically drop off as the weather gets colder especially in the northern states. Also, a large majority of renovations and alterations to school building and college campuses are scheduled during the summer months to minimize disruptions during the school year.

 2013 Commercial Construction Survey

During the second quarter of 2013, 53 percent of respondents felt their business was doing better now than it was six months ago. This is a slight increase compared to first quarter responses where only 49 percent indicated their business was doing better than the previous six months. The biggest change was in the percentage of construction professionals who stated their business was doing about the same as it was six months ago dropped to 29 percent, down from 39 percent during the first quarter. The amount of people who indicated their business was doing worse now relative to six months ago rose to 18 percent during the second quarter. This was only 12 percent during the first quarter.

2013 Q2 Commercial Construction Survey

As mentioned earlier the outlook for the rest of the year remains positive with a healthy majority of respondents indicating they expect their business to be doing better six months from now. That percentage dipped slightly from 61 percent in the first quarter to 58 percent in the second quarter but not enough to cause any major concern. Based on responses received during the second quarter 30 percent of commercial construction professionals felt their business would be doing about the same in six months and 12 percent felt they would be doing worse than they are now. Those numbers were at 34 percent and 5 percent during the first quarter. Another factor that may have caused the small downturn in optimism for future prospects is the uncertainty of the impact that implementation of the Affordable Care Act will have on the economy and the construction industry. Just recently one of the key components that was set to take effect in January 2014 requiring businesses with 50 or more employees to provide health care coverage or face hefty penalties was postponed and will not take effect until 2015.

Taking a look at some of the other industry-leading indicators we see that the construction industry got off to a rocky start in the second quarter of the year. The Bureau of Labor Statistics indicated that the construction industry lost approximately 7,000 jobs in April, gained them all back in May and then added another 13,000 jobs in June to bring the unemployment rate for the industry down to 9.8 percent.

FMI’s Nonresidential Construction Index Report for 1st Quarter 2013 continues to show growth coming in at 58.1. This matches the number it was for 1st Quarter 2012 is the highest it’s been since 2nd Quarter 2012 when it reached 59.8. Remember, any score above 50 indicates expansion, while any score below 50 indicates contraction.

FMI’s Nonresidential Construction Index Report (NRCI) for 2nd Quarter 2013 came in with a score 0f 60.1 which is the highest score ever since the index was first compiled in 2009. The other highlight of the report is that most respondents expect the sequestration to have a limited effect on their business.

FMI has also recently released their Q2-2013 Construction Outlook report in which they reduced their prediction for annual Construction-Put-In-Place (CPIP) for 2013. This report covers both residential and nonresidential construction. They are now predicting only a 7 percent growth over 2012 numbers which comes to about $913 billion in CPIP. This is down from the 8 percent growth they were predicting in the first quarter however they expect 2014 to be back up to 8 percent growth for the industry.

The American Institute of Architectects’ Architecture Billings Index also suffered a slight hiccup in April when it indicated a decrease in billing for the first time in nine months. The ABI was at 48.6 in April but quickly bounced back in May with a score of 52.9.  For the AIA’s index, a score of 50 indicates no change from the previous survey period.

The Turner Building Cost Index, for the eleventh quarter in a row, reported a gradual increase in costs.  For 2nd Quarter 2013 it rose to 859 which is up 1.18 percent from the previous quarter and up 4 percent since 2nd Quarter 2012. The Turner BCI measures costs in the nonresidential building construction market in the United States.

For May 2013, the nation’s nonresidential construction spending was up 0.5 percent from April’s revised estimate according to the U.S. Commerce Department. May’s seasonally adjusted annual rate was estimated at $874.9 billion and April’s revised estimate was $870.3 billion. May’s estimate is 5.4 percent higher than the estimated $830.4 for May 2012.

Overall indications point toward continued growth for the remainder of the year for the commercial construction industry. Construction spending continues to grow and the unemployment rate for the industry continues to drop. Based on the responses received for the 2nd Quarter CDI some regions and sectors served are improving at a faster rate than others but that is to be expected after such a long recession. The biggest concerns so far this year seem to be focused on increased fuel prices, possible insurance rate increases due to implementation of the Affordable Care Act and uncertainty over the continued economic recovery. Even in areas where the demand for construction is rapidly increasing, profit margins remain fairly low due to fierce competition and the demand for qualified workers. The CDI indicates that a larger majority of companies feel their business is doing better now and a majority of respondents continue to feel their business will be doing better through the end of the year.

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. 1.      How is your business doing, relative to six months ago?
  2. 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.

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