Though the U.S. economy is in the fourth year of economic expansion, sustained momentum and confidence continues to elude the domestic construction industry.
According to the Construction Financial Management Association's third-quarter 2012 Confindex survey, the overall construction Confidence Index is down 6.5% from last quarter and now stands at 116. Declines were registered in all major index subcomponents. The Current Confidence Index fell to 108, representing a 9.2% decrease from last quarter’s reading of 119. The Business Conditions Index fell from 138 to 129 during the third quarter, a decline of 6.5%. The Financial Conditions Index declined 4.5% to 106. And perhaps most importantly, at 126, the 2013 Outlook Index is down 3.1% from the prior quarter.
In many respects, very little changed over the quarter. Gross domestic product continues to hover around 2% (1.7% on an annualized basis during the second quarter of 2012). Job growth continues to be soft, with the Bureau of Labor Statistics indicating that the nation added 96,000 jobs in August according to the preliminary estimate – the fourth time in five months that job growth fell short of six digits.
Nonresidential construction spending has been flat, though a number of key segments including lodging, power, and manufacturing are up significantly on a year-over-year basis. What’s more, the housing market appears to have bottomed, with home prices now rising in many regions and housing starts steadily ticking higher.
U.S. financial markets have also performed well, with both the NASDAQ and Dow Jones Industrial Average up neatly year-to-date. There is even evidence suggesting that bankers are more eager to lend and are now aggressively in search of creditworthy borrowers ready to move projects forward, to invest in equipment and in people.
In other words, based upon the data, executives have as much reason to be gaining confidence as to lose it. Something else must be at work, and that thing appears to be a sea of lingering uncertainty emerging from various sources. For instance, the passage of another quarter places the nation that much closer to falling off its fiscal cliff. Most economists agree that absent resolution to key issues by Congress, including those related to the Bush tax cuts and automatic federal spending cuts, the nation will enter recession next year. The most recent quarter has also been associated with rising energy and food prices, jarring headlines from Europe and the Middle East, and news of sharp slowing in even some of the world’s healthiest economies, including economies in China and Brazil. And then there are the November elections . . .
These and perhaps other issues have placed many construction executives on the psychological defensive.