ENR's Construction Industry Confidence Index
The construction industry has been expecting a turnaround in the market for the past three years, but just when sentiment starts to improve, fate steps in to thwart an upswing. Most recently, industry executives said that, once the national elections were decided in November, there would be more clarity on the direction of the market. With the results behind us, industry still is waiting for a sign that a market uptick is near.
The most recent ENR Construction Industry Confidence Index survey reflects this continuing uncertainty. The fourth-quarter 2012 CICI remained unchanged at 50 points on a scale of 100, which represents a flat market. The 378 executives of large construction and design firms responding to the survey believe the market will not begin to show signs of growth until the end of 2013 or beginning of 2014, if then.
The CICI measures executive sentiment about the current market and reflects their views on 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 out to more than 3,000 U.S. firms on ENR's lists of the leading contractors, subcontractors and design firms. The latest results are based on a survey conducted from Nov. 19 to Dec. 10.
One of the major concerns about the future construction market arises from the current uncertainty about the U.S. economy. The CICI also measures sentiment about the U.S. economy, a leading indicator of future construction trends. In the fourth quarter, confidence in the U.S. economy fell to a CICI rating of 47, from 51 in the third quarter and 55 in the second quarter. In the first quarter of 2012, it stood at 64, which hinted at a significant recovery that never came.
As for the current market, 30% of industry execs polled believe it is still in decline, while only 18% believe it is growing. Only 26% believe the market will be growing within the next six months, while an equal number believe it still will be in decline. However, 44% believe the market will be on the upswing by the end of 2013, compared with only 15% of respondents who believe the market will continue to be in decline in 12 to 18 months.
CFMA Members Are Worried
The CICI findings parallel the soon-to-be-released results of the latest Confindex survey from the Construction Financial Management Association, Princeton, N.J. CFMA polls 200 CFOs from general contractors, subcontractors and civil contractors. While a Confindex rating of 100 indicates a stable market, higher ratings show growth is expected.
"Our Confindex fell from 117 to 114 [on a scale of 200] for the fourth quarter," says Stuart Binstock, CEO of CFMA. In the first quarter of 2012, the Confindex hit 131. He notes that two of the four components making up the Confindex declined sharply in the fourth quarter. The business conditions component of the Confindex fell to 123 from 130, while the outlook for the year ahead component fell to 118 from 127, Binstock notes.
This is a turnaround from previous quarters where CFMA's survey showed increasing optimism among contractor CFOs. "In the last few months, [CFMA] members have seen the forward momentum in the market stall," says Anirban Basu, CEO of economic consultant Sage Policy Group Inc., Baltimore, and CFMA economic adviser. "They do not expect the market to go off a cliff, but they have been seeing owners increasingly reluctant to go forward with projects, especially the larger, more risky ones," he says.
Basu says this uncertainty is not tied to project financing. He notes that the Confindex component relating to business financing remained unchanged from the last quarter. This parallels ENR's CICI findings where 64% of survey respondents said that project financing has been unchanged from six months ago, while 19.9% said that project financing has actually eased in the past six months.