ENR Confidence Index Rises Dramatically
The construction market has taken its lumps over the past four years, tempting a normally optimistic industry to get gloomy.However, for the first time since early 2008, the industry is seeing signs that suggest the worst is over and the market is gradually recovering.
The most recent ENR Construction Industry Confidence Index survey shows the industry's growing hope that recovery is at hand. The first-quarter 2013 CICI surged to a record 64 points on a scale of 100, which represents a growing market. The vast majority of the 376 executives of large construction and design firms responding to the survey believe the market has stabilized. Only 13% of respondents believe the market currently continues to decline, while 32% believe it is growing. This contrasts with the 2012 CICI for the fourth quarter, when 30% believed the market continued to decline, while only 18% believed it was growing. 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 February 26 to March 11. Survey participants are not unanimous in believing the recession is over, nor are industry execs ready to declare that happy days are here again. But there is a general feeling that the worst is behind us. "After four miserable years, construction is finally starting to rebound," says an executive at a midsize subcontractor in the Southeast. However, recovery will come in fits and starts, he cautions. Several participants worry that federal budget fights may stall a market that seems to be taking off. "The fiscal cliff has everyone in turmoil, so money is on hold for many capital projects," says a contractor executive in the Northeast.
One construction manager worries that three of its federal projects may be halted because of sequestration. CFMA Survey Also Upbeat 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 rose to 129 from 114 [on a scale of 200] for the first quarter," says Stuart Binstock, CEO of CFMA. He notes that all four components making up the Confindex grew sharply in the first quarter. The current business-conditions component of the Confindex surged to 147 from 123, while the outlook for the year-ahead component rose to 139 from 118, Binstock notes.
"The politics in Washington does not seem to have thwarted our members' optimistic outlook," he says. The positive jump in the CFMA and CICI indexes caught some by surprise. "The economy grew only 0.1% in the fourth quarter, and taxes are up—usually a negative market indicator," says Anirban Basu, CEO of economic consultant Sage Policy Group Inc., Baltimore, and CFMA economic adviser. However, he says there is a growing sense in the industry that the demand for new work is there and that the market will show real gains this year. One positive industry trend is the availability of project financing, Basu observes. "Banks increasingly are willing, even anxious, to lend on projects," he says. However, budget concerns on the public side, along with worries about federal budget sequestration, are putting a damper on the industry's overall confidence in project financing, he says. "But the availability of new credit on the private side counterbalances public budget constraints," he notes.
The easing in project financing can be seen in the CICI survey. ENR's survey found that while 56.4% of survey respondents said project financing availability has been unchanged from six months ago, 31.9% said credit for project financing was actually easing from the level it was in mid-2012. This compares to last quarter, when only 19.9% found project financing to be getting easier, while 15.9% found financing was getting tougher. Among the individual sectors, the CICI survey shows that respondents are very confident. Applying the CICI rating formula, the ratings for all markets grew except for the water, sewer and waste market, which remained flat. Further, all markets but one are now above 50, which is the CICI's benchmark rating for expectations of growth.
The entertainment, cultural and theme-park sector stands at 45. Spurred by shale-gas development projects and pipeline work, the petroleum market's 78 CICI rating was the highest-rated sector, according to the survey. Another market that remains strong is the multi-unit residential sector, with a CICI rating of 74. Other strong markets included power (with a CICI rating of 69), hospitals and health care (68), and industrial process-manufacturing (61). Overall, construction executives are optimistic about market prospects for 2013. However, many CICI survey respondents worry about the economy and how national politics may affect it. Basu notes that there will be another round of debt-ceiling debates that will culminate on May 19. He says the debt-ceiling showdown of 2011 sent industry confidence into a tailspin. "Things are in place for a meaningful recovery this year, but there still is time for Washington to mess things up."
Prospects by individual sectors by firms working in those markets