Associated Builders and Contractors Inc.

Contractor Confidence Rises in First Half of 2013

Associated Builders and ContractorsConstruction Confidence Index (CCI) shows confidence among nonresidential contractors increased slightly during the first half of 2013, despite sequestration and rising interest rates.

“As the economic recovery enters its fifth year, nonresidential construction prospects continue to brighten,” said ABC Chief Economist Anirban Basu. “A variety of industries ranging from professional and health services to leisure and retail continue to add jobs, and vacancy rates in many product categories throughout the country are falling, creating new opportunities for developers and their contractors.”

The CCI reflects three aspects of the U.S. nonresidential construction industry: sales prospects, profit margins and staffing levels. As a diffusion index, CCI readings above 50 indicate growth, while readings below 50 are unfavorable. Following are CCI indices for the first half of 2013 compared to the second half of 2012.

  • Sales expectations rose from 62.3 to 63.
  • Profit margin expectations slipped from 55.9 to 55.3.
  • Staffing level expectations rose from 59.6 to 60.

“While there is debate regarding the pace of economic expansion going forward, there seems to be little worry about another recession, implying that opportunities for contractors will continue to expand,” Basu said. “This helps explain the construction confidence readings, which have steadily expanded despite emerging reasons for concern - keeping roughly in lockstep with an ongoing gradual recovery that has averaged about 2 percent annual growth since the recession ended.”

“Several events have impacted the gradual increase in confidence this year, including Detroit’s bankruptcy, rising interest rates, the nation moving closer to another debt ceiling debacle and softening in the housing market.” Basu said. “However, certain aspects of the economic environment have improved, including the availability of capital and the steady healing of state and local government budgets.

“Overall, contractors are saying positive factors will outweigh negative ones, helping create an improved construction spending environment in 2014,” Basu said.

Of the three aspects of the U.S. nonresidential construction industry CCI represents, all three are above the threshold value of 50 and two are up on a year-over-year basis. Profit margins was the only category that declined.

“Contractors are likely to be busier next year, but profit margin growth will be constrained because of fierce competition. As a result, there will be substantial pressure to control costs, which implies hiring will continue to be soft, though the number of industry workers is set to expand next year,” said Basu.

 

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