ENR

Execs see markets stable or growing, but possible moderation in 2017.

The construction market has been growing steadily for several years, slowly recovering from the depths of the 2008 recession. The good news is that most industry executives believe this trend will continue into 2015, but a majority polled by ENR also believe that growth will moderate by 2017.

The ENR Construction Industry Confidence Index (CICI) survey for the fourth quarter shows that, of the 328 executives of large construction and design firms responding to the survey, most see the market as stable or growing.

The CICI remained steady at a record 77—on a scale of 100, an indicator of a growth market—in the fourth-quarter survey.

The index tracks executive sentiment about the current market and reflects the respondents' views on where it will be in the next three to six months and over a 12- to 18-month period.

The measure is based on responses to surveys sent out to more than 6,000 U.S. firms on ENR's lists of leading contractors, subcontractors and design firms. The latest results are based on a survey conducted from Nov. 13 to Dec. 15.

For the seventh straight quarter, the surveyed industry executives believe all the market sectors measured by the CICI are now in growth mode. The index has risen steadily, with the continuing decline in the percentage of firms that believe the market is shrinking. That figure now is in the low single digits.

While survey respondents generally believe the overall market will continue to pick up steam over the next 18 months, many feel the market will begin to level off in three years.

At year end, 55% say the current market is growing. When asked what the market will look like in three years' time, only 38% of the execs polled thought the market would still be growing, compared to 45% in the third quarter.

For the CICI survey, execs were asked to assess current and future market prospects in general and in any of the survey's 15 market sectors in which they work. Among the individual market sectors, the industrial process and manufacturing market jumped six points to a CICI rating of 76, the highest-rated market. The petroleum market, which ranked as the highest rated for five straight quarters, slipped to second—falling four points to 75.

The third-highest-rated market, multi-unit residential, is showing surprising strength at 74, declining one point from the third quarter. Many execs believe this robust market will begin to falter in the next year to 18 months.

The distribution and warehouse market sector also is rated at 74, rising seven points.

Confidence in the infrastructure markets faltered this quarter. Transportation was down two points, to 62. The water-and-sewer sector slid two points, to 64. The power market also fell, down four points to 66.

CFMA Survey Shows Optimism

The soon-to-be-released results of the latest Confindex survey from the Construction Financial Management Association, Princeton, N.J., show growing optimism about 2015. CFMA polls 200 chief financial officers in 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 by five points, to 132 [on a scale of 200], for the third quarter," says Stuart Binstock, CEO of CFMA.

Binstock notes that the "overall business conditions" component of the CFMA survey rose sharply in the fourth quarter, up nine points to 152. "This quarter, 53% of our respondents said that profit margins were somewhat better or significantly better than the year before, compared to 43% in the last quarter."

One big boost to the bottom line for CFMA contractors has been the drop in the price of oil and gas. "Materials prices have not been an issue for the past year or so, and the drop in gas prices, particularly for contractors with big equipment fleets, is a savings that goes straight to the bottom line," says Anirban Basu, CEO of economic consultant Sage Policy Group Inc., Baltimore, and CFMA economic adviser.

Not everything is rosy in the expanding market. "The availability of skilled workers continues to be a real concern to our members," Binstock says. He notes that 80% of CFMA members surveyed say they are concerned or very concerned about future workforce skills shortages.

This matches ENR's CICI findings. The CICI survey this quarter asked whether each firm planned to add staff in 2015. Of those answering, 80% said they did plan to add staff, while only 11.7% said they had no hiring plans.

This quarter's survey also asked whether firms had declined to pursue project opportunities in the past year because of concerns over a lack of internal resources. A surprising 40.6% said they had declined to pursue projects to protect against the risk of getting overextended.

Financial institutions continue to provide project financing. In this quarter, 39.5% of CICI respondents said credit for project financing was easier to obtain than six months ago, compared to 39.7% last quarter. Only 4.7% said they saw any tightening in project financing.

Some markets are growing slower than others. But overall, the market continues to grow and prosper.

"In a world full of challenges, there really is such a thing as good news—and the current market really is good news," Basu says.