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Construction Nails a 4-Year Record

Friday, May 31, 2013

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Nonresidential construction activity across the U.S. is trending upward, a new economic index shows.

Meanwhile, however, questions loom on the effect of the federal government sequestration for public and private projects as well as anticipated labor shortages.

nonresidential construction
Tim Evanson / Wikimedia Commons

Nonresidential construction activity has reached 60.1 on FMI's index, the highest level seen in four years.

The new report, from FMI, a management consulting and investment banking firm that focuses on the construction industry, says nonresidential activity has reached its highest level since the index's inception in the first quarter of 2009.

The 2013 Second Quarter Nonresidential Construction Index reached a record 60.1, a two-point improvement over the first quarter. Readings below the index’s baseline of 50 indicate that construction activity remains weak, while readings above 50 indicate growth.

The index is based on a survey of approximately 160 top executives of construction companies involved in nonresidential building.

‘Not a Bullish Trend’

“This isn’t a bullish trend yet,” warns FMI, “but it demonstrates that the nonresidential construction market continues to push upward."

FMI chart

Any score above 50 indicates growth. FMI, a management consulting and investment-banking firm that focuses on the construction industry, launched its construction index in the first quarter of 2009.

FMI noted that the index for the overall economy rose 7.9 points to reach 69.8 and the combined index sentiment for economies where panelists are doing business climbed 5.8 points to 70.2.

Hot Button: Sequestration on Construction

The report also highlighted current issues facing public and private nonresidential construction including sequestration and potential labor shortages.

The sequestration is part of the Budget Control Act of 2011 that called for across the-board budget cuts split evenly between defense and domestic spending.

“As of this quarter, only 19 percent of panelists have seen any impact on public sector work,” FMI said. Six percent say they are seeing some reduction in private work due to sequestration.

Still, many are uncertain about what the future holds as the budget cuts are just now working their way through the economic and bureaucratic systems, FMI reported.

“Eventually it will affect the private sector as much, if not more, than the public sector because of the ripple effect it will have on individuals’ spending ability,” according to one panelist quoted in the report

The majority of respondents expect only a 0 to 4 percent reduction in their public works and private projects due to sequestration.

Labor Shortages Expected

Currently, severe labor shortages are not a factor, the report said. But that could change in the coming year.

FMI says 22 percent of the panelists expect severe shortages for construction laborers and for select tradespeople, including painters, roofers, and electricians.

The industry lost more than 30 percent of the construction labor force during the recession, FMI reports.


Tagged categories: Commercial Construction; Economy; FMI; Good Technical Practice; Health Care/Hospitals; Market; Market trends

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