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U.S. Construction Bullish on 2014

Thursday, February 20, 2014

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Nonresidential construction in the United States is in for a very strong year, even bringing boom-related backlog and hiring challenges, contractors report in an upbeat new survey.

Optimistic about their productivity, prospects, and growth, industrial and commercial contractors say they are on the right side of the economy this year.

That's the word from the new 2014 First-Quarter Non-Residential Construction Index, compiled by global engineering and construction consultancy FMI, based in Raleigh, NC.

The index, now in its fifth year, is a measure of a variety of economic indicators from construction employers. The first quarter of 2014 showed a 7.5-point increase over the fourth quarter of 2013, and a 6.8-point increase over the first quarter of 2013.

FMI Summary
Images: FMI

Construction employers are mostly bullish on 2014. Hiring remains a concern.

The current overall index score, 64.9, is the highest to date, reflecting an optimistic view of a rising economy, FMI reports. Scores higher than 50 indicate expansion.

Growth...

Regarding the overall economy, the index rebounded by 19.1 points from the fourth quarter, notching a 79.8. Employers' views of their local economies climbed by 15.4 points over the last quarter, to a rating of 77.0. Overall, employers' view of their own business is steadier than the swings in the market, gaining 5.1 points to reach 75.4.

Nonresidential construction markets where the FMI panelists do business is struggling, but gaining, FMI said.

Construction

Projects are improving steadily, FMI says. Nearly half of participants expect construction to grow up to 5 percent this year.

"It takes some time for the optimism in the overall economy to turn to projects sold and steel going up," FMI reported. "Nonetheless, projects are steadily improving as the index bounced back 8.5 points in the first quarter, but only 1.0 point higher than the third quarter of 2013."

Nearly half of participants (49 percent) say they expect construction to grow up to 5 percent in 2014. That figure is up from just 18 percent a year ago.

The median backlog remains at about nine months, "suggesting a continuing competitive market for construction," FMI said.

Challenges...

With growth comes challenges, the employers concede. "Hiring talented people" tops the employers' list of concerns for 2014, followed closely by "finding profitable work."

Employers also report "uncertainty in the direction of the government, especially regarding decisions directly affecting the economy." And the rising cost of labor and materials remains a concern.

FMI NRC Index

FMI's Non-Residential Construction Index reached its highest score since it began in 2009.

More than half of employers plan a 0-5 percent increase in staff, while 18 percent expect to add 5-10 percent to their full-time payroll.

Still, stung by the downsizing of 2009 and 2010, 35 percent of contractors say they will not make new hires until their current staff is "consistently over full work capacity." On the other hand, 28 percent say there "is always room for exceptional individuals."

Contractors "are increasingly aware that they need to keep the talent pipeline full to succeed retiring talent, particularly at top positions as more boomers in the boardroom look to retire," according to FMI.

...And Questions

FMI says that last year's results showed employers to be slightly conservative in their growth estimates, strongly suggesting room for optimism this year.

However, the company also notes that this is a post-recession election year, which is likely to influence promises made, policies developed, and funds spent.

"Now we are compelled to ask, 'Is it going to rain on our parade?'" the report says. "We have to ask that question—not to be a party pooper, but because there is this continued lingering feeling that something will conspire to put out the fire of sustainable growth."
 
NRCI Demographics
Election-year "political rhetoric backed by lack of positive action will do little more than jawbone about such concerns as infrastructure construction," the report said.
 
"If people are going to be put back to work and create sustainable growth, we must turn to leaders in corporate America, universities and other institutions. Investors are starting to look at repatriating some of their dollars and turning from Canada and China to our own country, where the shopping mall is due for a renovation and there is a real boom in energy markets."
 
Still, the report sees "real progress" and employers "landing real work at a higher rate than in the past few years."
 
As for the challenges ahead, FMI asks: "When was it any different?"
 

Download the full report free here.

   

Tagged categories: Commercial contractors; Construction; FMI; General contractors; Industrial Contractors; Market forecasts

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