ENR’s Construction Industry Confidence Index remained steady in Q1, rising slightly to a rating of 61, a one-point bump from the final quarter of 2021. The index had fallen the previous two quarters.
The index measures executive sentiment about where the current market will be in the next three to six months and over a 12- to 18-month period, on a 0-100 scale. A rating above 50 shows a growing market. The measure is based on responses by U.S. executives at leading general contractors, subcontractors and design firms on ENR’s top lists to surveys sent between Feb. 7 and Mar. 14.
Executives are much less confident about the economy as a whole. The economic confidence index fell four points to a rating of 46. The index has dropped 34.3% since Q2 in 2021. Only 19.8% of respondents thought the economy would improve in three to six months, with 35.2% seeing a decline. Those numbers flip when looking long term, however. When considering the economy three years from now, 17.9% see a decline while 42.6% see an improving economy.
Related link: ENR 2022 1Q Cost Report PDF
Confidence rose in all markets that ENR tracks this quarter, with the exception of slight dips in the distribution/warehouses market (down two points to a 78 rating) and higher education (down one point to 51). Transportation made the biggest jump, up 14 points from last quarter to a 70 rating. Confidence in the hotels/hospitality market continues to rise, up 13 points to a 57 rating. Retail rose 10 points to its highest rating (42) since Q3 of 2018.
The results of the latest Confindex survey from the Construction Financial Management Association (CFMA), shows little change in chief financial officers’ overall confidence in the market. Each quarter, CFMA polls CFOs from general and civil contractors and subcontractors about markets and business conditions. The Confindex is based on four separate financial and market components, each rated on a scale of 1 to 200. A rating of 100 indicates a stable market; higher ratings indicate market growth.
The overall Confindex rating stayed at 116. The “current confidence” index rose two points, also to 116, and the “year ahead outlook” fell one point to 115. More interestingly, the “business conditions” index rose, up eight points to a rating of 131.
This is an indication of how strong demand is for construction services, says Anirban Basu, CEO of economic consultant Sage Policy Group, Baltimore, and a CFMA economic adviser. That’s surprising, given the rise in the cost of delivering construction services, he thinks. “And yet many of them are reporting that, if anything, their profit margins are set to expand going forward.” Basu cites regional megaprojects, such as Intel’s recently announced $20-billion semiconductor plant in Columbus, Ohio, data and fulfillment centers, health care and incoming infrastructure projects as some of the primary drivers of this demand.
Respondents to the Confindex survey are more pessimistic about project funding moving forward. The “financial conditions” index, which measures present and future credit, fell five points to a rating of 105. “[CFOs] appear to be concerned that the federal reserve is going to start tightening monetary policy, maybe tighten it too aggressively given all of this inflation,” says Basu. And that in turn will make financing projects and construction loans more expensive, even as more infrastructure dollars start to hit the economy, he thinks.
Labor Shortages Top of Mind
According to the February U.S. Bureau of Labor Statistics report, construction employment has nearly reached its pre-pandemic levels, but labor shortages are still pressing.
“When you look at this quarter, 74% [of respondents to CFMA’s Confindex survey] are highly or very concerned over labor shortages,” says Stuart Binstock, CFMA’s CEO. “That’s three-to-five times higher than any other issues of concern.”
Basu characterizes it more as a skills shortage than a worker shortage. “The fastest growing occupational category within construction is unskilled labor,” he says. Skilled worker shortages have been driven by retirements, but also by changes in immigrant worker availability. Slowing immigration and more aggressive enforcement of existing laws related to undocumented workers have drained an already shallow labor market, Basu says.
Russia’s invasion of Ukraine has disrupted the global energy market, but the conflict does not appear to have affected construction firms’ industry confidence—at least for now. ENR’s Confidence Index came in at a 61 rating for firms filing both before and after the invasion began. Basu thinks that a shift away from Russian oil could open opportunities for U.S. energy production.
“Europe started buying oil and natural gas from Russia with the intent of building a relationship on mutual economic interest,” he says, but recent aggressive Russian actions have shown that type of engagement to be problematic. That could translate into energy exports to Europe from the U.S. “Of course a lot of that translates into construction work,” he adds.