This summer was supposed to be when the construction market would turn around, but that has not been the case for most industry firms. More and more, the industry is sensing that summer 2011 will fare no better than 2010's or 2009's “summer of recovery.” With concerns about not just the health of the construction market but also the American economy as a whole, industry confidence is beginning to fall.

This disappointment over market prospects is shown in the most recent ENR Construction Industry Confidence Index survey. The CICI for the second quarter of 2011 fell to 46 on a scale of 100, down five from 51 in the last quarter. This slide brings the CICI below 50, which would signal a stable market. The 690 executives of large industry firms responding to the survey believe the market still has a way to go before recovery.

The CICI measures executive sentiment about the current market and projections for where it will be in the next three to six months and over a 12- to 18-month period. The CICI is based on responses to surveys sent out to more than 3,000 U.S. firms on ENR's lists of the leading contractors, subcontractors and design firms. It was conducted from May 28 to June 13.

This quarter, 38% of all respondents say the market continues to decline, up from 32% in last quarter's survey and 45% in the fourth quarter of 2010. Only 13% believe the market currently is improving. The pessimism extends to the period from three to six months from now, as only 20% of respondents believe the market will be improving by the end of the year.

This percentage compares to the 31% who believe the market will still be in decline in December. Respondents were more confident of a rebound in 2012, with 48% saying the market will be improving in 12 to18 months, while 10% say it will continue to decline.

One striking result from this quarter's CICI survey is a sharp drop in confidence in the overall U.S. economy. In the first quarter's survey, 29% of respondents believed the economy was improving; only 13% believed the overall economy was on a downward trend.

In this quarter, those figures are nearly reversed: Only 16% of respondents believing the U.S. economy is improving, and 27% believing it is declining. Applying the CICI formula, the overall economy would have a 53 rating in the second quarter, down 18 points from 71 in the first quarter of 2011.

CFMA Survey: Receding Optimism

The CICI results are echoed in the soon-to-be released CONFINDEX survey from the Construction Financial Management Association, Princeton, N.J. CFMA polls 200 chief financial officers from general contractors, subcontractors and heavy and civil contractors. “Our CONFINDEX went from 131 to 111 [on a scale of 200] in the second quarter,” says Mike Verbanic, CFMA director of marketing.

The CONFINDEX is broken down into four indices. The index measuring current business conditions dropped to 126 from 145 in the first quarter. The index on financial conditions fell to 96 from 116, and the one measuring current market conditions fell to 96 from 120. CFMA's overall business outlook index fell to 127, down from 141 in the first quarter.

“The notion was, as the public-sector work began to wind down, the private sector would begin to pick up the slack,” says Stuart Binstock, CFMA's CEO. But that has not been the case, he says. “Even as the state and local markets continue to fall, our members don't see the private sector coming around in the near term.”

At the beginning of the year, many in the industry believed that 2011 would see a gradual improvement in the market. The recent soft employment figures, the spike in fuel and food prices, and Wall Street's slump have caused many in the industry to become more pessimistic, says Anirban Basu, CEO of Baltimore-based economic consultant Sage Policy Group Inc. and an economic adviser to CFMA. He says some owners are delaying projects until the economic news improves.

Further, Basu says unexpected surges in materials prices since the beginning of the year have spooked many in the industry. “These shifts have been really jarring to our CFOs,” he says, adding that contractor CFOs may now be even more pessimistic about the economy than the general public.

Applying the CICI formula to individual market sectors, respondents felt that most were about the same or slightly down from the first quarter. The only markets that gained were multi-unit residential—up three points to 55 on a scale of 100—and higher education (54) and health care (67), both up a point.

The only significant falloff in CICI ratings from the first quarter were two of the stronger markets, which were both down four points: Power, the strongest market, has a 71 rating, and the hazardous-waste market has a 59 rating.

While industry executives are not confident the market will turn around soon, Basu points out that 2011 is showing similarities to 2010: Troubling economic news and a dip the stock market in mid-summer 2010 caused industry confidence to plummet, too.

But Basu says the economy and the stock market rebounded in fall 2010, giving the industry optimism. “The big question is, will the economy recover from this year's summer swoon like it did last year or will it be a longer-term downturn? It will be interesting to see what everyone thinks once the third-quarter survey results are out.”