Given that the construction industry is a trailing economic indicator, industry executives are keenly aware of the state of the American economy. With recent news full of gloom, from consistently high unemployment rates to gridlock in Washington over raising the debt ceiling, industry confidence in the economy has taken a nosedive, reducing optimism that the construction market will recover any time soon.
This bleak view of the markets' immediate future is reflected in the most recent ENR Construction Industry Confidence Index survey. For the third quarter of 2011, the CICI plummeted to 37 on a scale of 100, down nine points from 46 in the last quarter and down 14 points from the first quarter, when the rating stood at 51, an indicator of a stable market. This slide brings the CICI far below 50, indicating the belief that the market still is in recession. The 664 executives of large construction and design firms responding to the survey believe the market still has a way to go before recovery takes hold.
The CICI measures executive sentiment regarding the current market as well as their projections for where it will be in the next three to six months and over a 12- to 18-month period. The index is based on responses to surveys sent to more than 3,000 U.S. firms on ENR's lists of the leading contractors, subcontractors and design firms. The survey was conducted from Aug. 29 to Sept. 12.
The CICI also measures executive sentiment about the overall U.S. economy as a leading indicator of future construction markets. In the first-quarter survey, respondents were confident enough that the U.S. economy was on the right track to give it a 71 rating on a scale of 100, a strong vote of confidence. By the second quarter's survey, that rating had dropped to 53, indicating a belief that the economy was stable but not growing. In this quarter's survey, the rating now stands at 38, showing that respondents now believe the economy will get worse before it gets better.
This pessimism is reflected in the responses about prospects in the construction market as a whole. This quarter, 52% of all respondents say the market continues to decline, up from 38% in last quarter's survey and 32% in the fourth quarter of 2010. Only 9% believe the market currently is improving.
The pessimism extends to the period from three to six months from now, as only 13% of respondents believe the market will improve by the beginning of 2012. This compares to the 42% who believe it will still be in decline. Respondents were more confident of a market rebound in 2012, with 36% saying the market will improve in 12 to 18 months, while only 13% expect it to continue to decline.
CFMA Index Unchanged
The CICI outlook stands in contrast to the about-to-be released results of the latest 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. A CONFINDEX rating of 100 on a scale of 200 indicates a stable market, with higher ratings showing an expectation of market growth.
“Our CONFINDEX was unchanged at 111 from the second quarter,” says Stuart Binstock, CEO of CFMA. However, the CONFINDEX stood at 131 in the first quarter of 2011.
The CONFINDEX is broken down into four indices. The index measuring current business conditions dropped to 114 from 126. The index on financial conditions covering credit availability rose to 107 from 96, and the index measuring current market conditions rose to 105 from 96. CFMA's CFO participants rated the overall business outlook at 117, down from 126 in the second quarter and 141 in the first quarter.