Contractors remain confident in February

April 18, 2019

The latest Construction Confidence Index (CCI) shows construction industry leaders remained confident in February regarding the nonresidential construction sector's future, according to www.abc.org.

Expectations for sales during the next six months remained especially positive, with more than 70% of respondents anticipating an increase in sales levels. Contractors also were optimistic about future staffing levels; only 3.4% of contractors indicated expectations of shrinking workforces. Still, 31.4% of contractors expect profit margins to remain unchanged.

All three principal components measured by the survey—sales, profit margins and staffing levels—remain well above the diffusion index threshold of 50, signaling continued expansion in construction activity. In February, the CCI increased from 68.4 to 69.4 for sales expectations; increased from 60.6 to 63.3 for profit margin expectations; and increased from 68.2 to 68.5 for staffing levels.

"Confidence seems to be making a comeback in America," says ABC Chief Economist Anirban Basu. "There was a time when consumer, small-business and investor confidence was falling. For now, that dynamic has evaporated, with job growth continuing and U.S. equity prices heading higher of late. Contractors understand the performance of the broader economy today helps shape the construction environment of tomorrow. Accordingly, with strong economic data like the Construction Backlog Indicator—which stood at 8.9 months in February 2019—and nonresidential construction spending, which increased 4.8% year over year, contractor confidence remains elevated.

"That said, contractors continue to wrestle with ever-larger skilled workforce shortfalls, which are making it more difficult to deliver construction services on time and on budget," Basu continues. "This helps explain why the CCI reading for profit margins remains meaningfully lower than the corresponding reading for sales expectations. Despite expanding compensation costs, contractors expect to significantly increase staffing levels going forward, an indication that many busy contractors expect to get busier. The fact that the profit margin reading remains above 50 also suggests that contractors enjoy a degree of pricing power and are able to pass at least some of their higher costs along to customers. Slower growth in construction materials prices relative to last year represents another likely factor shaping survey results."