After five years of tough markets and hopes of a recovery that never quite seemed to materialize, construction industry executives now believe the industry is back on the path to growth and the elusive turnaround has arrived. While some sectors remain sluggish, most industry executives surveyed believe the overall market is growing.
The ENR Construction Industry Confidence Index survey for the fourth quarter shows the vast majority of respondents—328 executives of large construction and design firms—believe the market is experiencing a sustained recovery. The CICI index stands at 69 on a scale of 100, an indicator of a growth market. This equals the record CICI rating from the second quarter of this year, and it is two points above the 67 rating from the third quarter of 2013.
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. 20 to Dec. 16.
For the third quarter in a row, the surveyed industry executives believe all the market sectors measured by the CICI are now in growth mode. For the survey, we asked execs to assess current and future market prospects in general and any of the 15 market sectors in which they currently work. In all 15 of the survey's markets, more executives saw growth in their particular market sector than those in the same sector saw decline.
Another positive sign is that all market sectors had a CICI rating over 50, indicating expected market growth over the next 18 months. The petroleum market ranked as the highest-rated market, with a CICI rating of 82, followed by multi-unit residential, rated at 76, and the industrial-manufacturing and hotels-hospitality markets, both at 67. The markets for K-12 education and entertainment-theme parks-cultural were judged the weakest, with ratings of 53 and 54, respectively.
Caution Among CFOs
The CICI findings parallel the results of the latest Confindex survey from the Construction Financial Management Association, Princeton, N.J. CFMA polls 200 CFOs from general and civil contractors and subcontractors. While a Confindex rating of 100 indicates a stable market, higher ratings show growth is expected.
"Our Confindex remained steady at 127 [on a scale of 200] for the fourth quarter," says Stuart Binstock, CEO of CFMA. But he says there is a contrast in what CFMA members see now and what they anticipate in 2014. He notes that the current "business conditions" component of the Confindex rose to 147 in the fourth quarter from 142 in the third quarter; also, up from 38% last quarter, 44% of the CFOs polled this quarter said margins were better than a year ago.
However, Binstock says the portion of the survey relating to the availability of financing dropped to 111 from 114, and the year-ahead outlook rating fell to 132 from 135. "Our members are worried that the banks are tightening credit for projects," he says. Further, CFMA members are worried about labor shortages in the near future, which would put pressure on labor costs and margins, Binstock says.