Commercial and industrial construction contractors entered 2018 with abundant confidence regarding sales and staffing levels but are less confident about profit margins
Commercial and industrial construction contractors entered 2018 with abundant confidence regarding sales and staffing levels for the next six months, according to the latest Associated Builders and Contractors (ABC) Construction Confidence Index (CCI). All three components surveyed — sales, profit margins and staffing levels — remained well above 50 in the diffusion index, signaling ongoing progress. But the average contractor is less confident about profit margins than they were a year ago.
- The CCI for sales expectations increased from 66.4 in the first half of 2017 to 67.1.
- The CCI for profit margin expectations fell from 62.4 to 60.7.
- The CCI for staffing levels fell from 66.1 to 65.1.
“Despite the absence of an infrastructure-led stimulus package, leadership at the typical American construction firm remains upbeat regarding near-term prospects,” said ABC Chief Economist Anirban Basu. “Many firms, including large general contractors, report significant backlog, with office, data center, lodging, fulfillment center and other segments representing key sources of growth. While construction sales are expected to increase, growth in firm profitability is likely to prove more challenging as contractors deal with a combination of rising construction materials prices and worker compensation.
“The CCI survey was conducted during the second half of 2017, when discussions about tax cuts were front and center, but before current debates regarding U.S. trade policy and tariffs on key construction inputs such as steel and aluminum,” Basu said. “These confidence readings are consistent with the notion that contractors are increasingly concerned by rising compensation and materials costs.
“Still, more than half of surveyed firms expect 2018 profit margins to expand, at least during the year’s initial half. While only about 5 percent expect significant growth in profitability, 47 percent expect some expansion in margins. This is symptomatic of a strong U.S. economy—one in which the typical purchaser of construction services is not discouraged by the rising cost of construction service delivery.
“Among the primary beneficiaries of this strong economic dynamic and upbeat expectations are jobseekers. The construction unemployment rate has trended lower over time, and the most recent CCI survey indicates that the majority of firms expect to bulk up on staffing levels during the near term. Nearly 63 percent of respondents indicate they will expand their staffing during the next few months. By contrast, fewer than 7 percent expect to reduce company employment,” said Basu, “That is remarkable given the on-again, off-again nature of construction work.”
CCI is a diffusion index. Readings above 50 indicate growth, while readings below 50 are unfavorable.