Construction Contractors Confidence Strong in February

Construction industry leaders remained confident regarding nonresidential construction prospects in February 2019, according to the latest Construction Confidence Index released by Associated Builders and Contractors today.

All three principal components measured by the survey—sales, profit margins, and staffing levels— remain well above the diffusion index threshold of 50, signaling ongoing expansion in construction activity. Only 3.4% of contractors expect to reduce staffing levels over the next six months, and more than 70% of survey respondents expect their sales to increase through the initial half of 2019. Still, 31.4% of contractors expect profit margins to remain unchanged, likely due in large measure to rising worker compensation costs. The CCI for sales expectations increased from 68.4 to 69.4 in February. The CCI for profit margin expectations increased from 60.6 to 63.3. The CCI for staffing levels increased from 68.2 to 68.5.

“Confidence seems to be making a comeback in America,” said 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,” said Basu. “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.”

CCI is a diffusion index. Readings above 50 indicate growth, while readings below 50 are unfavorable.