Economic Headwinds, Rising Costs a Drag on Nonresidential Construction Sector Outlook, According to Q4 FMI Nonresidential Construction Index

The nonresidential construction sector is experiencing a slowdown as the economic recovery continues to taper and the industry is headed into the winter season, according to the FMI Nonresidential Construction Index Report (NRCI) for Q4 2015. The Index reflects the observations and sentiments of a sampling of construction industry executives nationwide.

FMI’s NRCI for Q4 2015 dropped 4 points to 59.5, the lowest score since the fourth quarter of 2013. The decrease was largely driven by the panelists’ declining outlook for the overall economy, which fell by 12.3 points to 58.3 from the last quarter. Panelists’ expectations of activity for the economic sectors in which they do business decreased to 64.8 points from 73.3 of last quarter, contributing to the conservative reading of the overall index. Cost of construction materials and labor continue to rise, increasing by 1.2 points to 30.6, indicating an expected bump in costs.

“Economic recovery momentum is losing steam and rising costs in labor and materials start to put a load on the industry,” said Chris Daum, President and CEO of FMI. “Next year will likely be more challenging for industry growth than 2015. . Firms that excel at recruiting and training the most skilled workforce will have a strategic edge in the marketplace.”

Highlights from the NRCI reveal challenges as the industry enters the last quarter of the year:

• Overall Economy Where Panelists Do Business: Panelists’ business is slowing down with a grim outlook of the overall economy.
• Panelists’ Construction Business: Although the panelists’ expectation of their construction activities slipped by 5.8 points to 69.9, it shows residual recovery momentum.
• Expected Change in Backlog: The measure of expected change in backlog dropped to 62.2 from last quarter’s 68.2, a median of the past 12 months.
• Cost of Construction Materials and Labor: The cost of labor and materials continues to go higher. Generally, it is expected that costs will rise as business improves, thus holding down the overall NRCI index number.
• Productivity Flat: The productivity component continues to hang around 50.0, or a small slippage. It is currently at 47.9.

Skilled Talent Still a Concern

Availability of skilled employees continues to be a key concern for construction business executives. A majority (77%) of the panelists surveyed reveal their worry about not finding enough skilled labor on a national level. Many panelists believe the shortage of craft workers to be an ongoing generational challenge.

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Source: FMI