Commercial construction confidence report hits record low

Commercial construction confidence report hits record low

The U.S. Chamber of Commerce and USG publish the Commercial Construction Index.

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The U.S. Chamber of Commerce and the U.S. Gypsum Corporation (USG), based in Chicago, have released their quarterly Commercial Construction Index (CCI), which is designed to gauge the outlook for, and resulting confidence in, the commercial construction industry.

The CCI for the first quarter of 2019 fell three points to 72, which is the lowest level since the survey began in 2017.

“While this quarter’s results still indicate a healthy market, Q1 marks the first time in the history of the index that all three [confidence] indicators— backlog, new business and revenue forecasts—have declined,” the report says. “It is hard to pin down exactly what’s driving this slight downward trend: the federal government shutdown, rising material costs or if it is simply a reflection of a cyclical industry. Even though this quarter’s numbers show the market may be moderating, historical standards tell us demand is healthy, and contractors remain upbeat.”

Each quarter since 2017, contractors across the country have been surveyed in order to better understand their levels of confidence in the industry and top-of-mind concerns.

Results from this year’s survey indicate the labor shortage continues to pose major challenges to the industry, causing firms to ask skilled workers to do more work, struggle to meet deadlines, increase costs for new work and reject new projects.

Confidence in new business suffered the largest drop (five points), but this may be due to concerns about the overall health of the economy and the federal government shutdown, the report says. Overall, the sector remains healthy, with more modest drops in backlog (three points) and revenue (two points). The backlog score (77) matched or exceeded most quarters in 2017 and the first half of 2018.

“The commercial construction sector added employees at more than double the pace of the overall economy in the past year, but the average work week reached an all-time high, per the Associated General Contractors. Across the industry, we must recognize the severity of the labor crisis,” the report says. “Our data show the dearth of construction workers is causing builders to turn down work, submit higher bids and struggle to meet deadlines.”

When asked about the biggest myths about working in the commercial building industry, contractors cited the perception that construction jobs are all “dirty” jobs (61 percent), construction work requires only brute strength (55 percent) and construction is just a “job” rather than a career (52 percent). Yet, contractors note good pay, opportunities for advancement and the ability to learn new skills on the job as the best reasons to pursue a career in construction.

Changing the mindset of the next generation and rebuilding the industry’s workforce is essential to the future success of commercial construction, the report concludes. Contractors this quarter pointed to some potential solutions, including promotion of the industry’s high rate of pay, more apprenticeships and clearer paths for advancement. Training and recruitment are also fundamental, the report says, as are solutions that center around efficiency, productivity and sustainability

The full report can be read on the Chamber of Commerce’s website. Other key findings of the report include:

  • Hiring expectations fell five percentage points below those in Q4 2018, but over half of those surveyed still expect to hire more workers in the next six months.
  • More than half of contractors continue to be concerned about finding workers with adequate skills, consistent with the findings throughout 2018.
  • The percentage of contractors who expect to spend more on tools and equipment, now at 47 percent, continues to inch lower since its peak at 59 percent in Q1 2018.
  • The number of contractors who report that their backlog has increased in the last three months saw a 13 percent drop in Q1 2019 compared with last quarter, now at 28 percent. This number has not dropped below 40 percent since Q1 2018.
  • There was a notable shift from a high to a moderate degree of confidence in the market’s ability to provide sufficient new business in the next 12 months. Fifty-five percent of contractors had high confidence and 43 percent had moderate confidence in Q4 2018, but that swapped this quarter, with 41 percent having high confidence and 54 percent having moderate confidence.
  • This quarter, more contractors expect revenue to remain the same, while fewer expect an increase in revenue. Slightly more expect revenues to decrease.
  • Most contractors—94 percent—report at least moderate levels of difficulty in finding skilled workers.
  • Contractors see an industry-wide reputation for better pay, more apprenticeships and a clear path of advancement as the top three ways to recruit new workers. There is no significant difference in the challenge reported in this area between the four census regions, a change from previous studies. There is also no difference by firm type or size.