Contractors expect a few dips, but remain confident of growth
Expectations for 2017 have become less optimistic, but the majority of industrial and commercial construction contractors still expect growth this year, according to the latest Construction Confidence Index from Associated Builders and Contractors.
Although all three diffusion indices in the survey — profit margins, sales and staffing levels — fell by more than five points, they remain well above the threshold of 50, which signals construction activity will continue to be one of the few significant drivers of economic growth.
The latest survey revealed:
- The CCI for sales expectations fell from 65.1 to 59.7.
- The CCI for profit margin expectations fell from 61.1 to 56.
- The CCI for staffing levels fell from 64.9 to 59.5.
There may be a period during which the pro-business agenda being forwarded in Washington, D.C., will significantly impact construction firm expectations. In fact, many construction executives have become more confident, including those who would stand to benefit most directly from an infrastructure package. However, there is a realization among construction firms that, if implemented, many of these pro-business initiatives would begin impacting the economy beyond the six-month timeframe built into ABC’s construction confidence survey.
Despite an ongoing dearth of public construction spending growth, certain construction segments have experienced significant expansion over time, including the office, hotel, health care and multifamily segments. This helps explain why more than 60 percent of respondents expect their sales to rise during early 2017 and the same number expect staffing levels to rise.
Respondents from Florida and other rapidly growing states are reporting significant shortages of appropriately skilled workers, which is helping to drive compensation costs higher. This helps explain why fewer than half (48 percent) of respondents now expect profit margins to climb. That is down from 54 percent from the previous CCI, supporting the proposition the construction skills shortfall has worsened over the past six months.
For now, confidence appears to be supported less by policymaking than by the ongoing momentum of the U.S. construction industry. Going forward, confidence is likely to depend more intensely on the new administration’s capacity to move its pro-business agenda from theory to practice.
Anirban Basu is chief economist with Associated Builders and Contractors.