NEW YORK, NY, August 19, 2015 – The nonresidential
construction sector continues at a steady pace, a slight decline
notwithstanding, according to the FMI Nonresidential Construction Index Report
(NRCI) for Q3 2015. The Index reflects the observations and sentiments of
a sampling of construction industry executives nationwide.
FMI’s NRCI for Q3 2015 dropped 1.3 points to 63.6 from
the previous reading of 64.9 in Q2. The index paints a mixed picture of the current
state of the nonresidential construction sector. On one hand, the NRCI
component for the overall economy dropped 6.3 points to 70.6 points this
quarter. While down from its peak, this component still indicates that
panelists contributing to the index remain bullish about the economy.
Similarly, indicators for the economies where panelists do the most business
stood at 73.3, indicating a strong outlook despite a slight 3.4 points slip
from last quarter.
“The construction industry continues to proceed on the
recovery track, although it is showing signs of a minor deceleration,” said
Chris Daum, president and senior managing director of investment banking at
FMI. “Despite the decrease in projected backlog and the squeeze from rising
material costs, executives in our industry are still bullish and hold positive
outlooks overall.”
Highlights from the NRCI point to diverse forces driving
the industry as we enter the last quarter of the year:
Panelists’ Construction Business. Panelists’
views on their businesses are solidly positive with little changed from the
last quarter.
Nonresidential Building Construction Market.
Although the nonresidential building construction market where panelists do
business slipped 1.4 points to 75.0, this NRCI component remains in the
optimistic range.
Expected Change in Backlog. The measure of
expected change in backlog dropped 3.1 points this quarter to reach 68.8, while
current backlog remains at a solid 10 months.
Cost of Construction Materials and Labor.
The cost of labor continues to rise, though not greatly changed from the last
quarter, at 12.5. Materials costs continue to be high, but slightly lower than
last quarter. Both labor and material costs act to hold down the overall NRCI
as costs increase.
Productivity Low. The productivity component
stands at 47.6, the lowest since 2008. Executives surveyed report difficulties
in maintaining productivity while squeezed by rising material and labor costs.
International Debt Impacts
The NRCI Q3report tallies executives’ opinions on the
potential impact of the Greek debt crisis on their businesses. A third of
respondents indicated no immediate or long-term impact was likely for their
businesses, 25% were unsure and only 2% surveyed expected they would have to
adjust their strategic plans to deal with the uncertain economy.
Business Changes Since Recession
All sectors within the construction industry continue
their recovery since the financial crisis, with companies making numerous
adjustments to their businesses in the intervening recession. The NRCI Q3
report summarizes how business adapted during the recession. Among the
strategies employed, greater selectivity regarding projects and clients tops
the list, followed closely by greater use of technology for their businesses to
drive productivity, stronger risk management, heightened productivity, and
incorporating global geopolitical and economic conditions in decision making.
Source: FMI
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