Data shows an increase in commercial construction project leads coming in 2020.
Optimism prevails in the latest forecast by the United States Gypsum (USG) Corporation an the U.S. Chamber of Commerce Commercial Construction Index (CCI).
The CCI rose by three full points in the third quarter of 2019. This represents the highest score since the second quarter of 2017, which was the first time the index was released.
Commercial construction is a key contributor to America’s economic health. The CCI survey encompasses interviews with a cross-section of American commercial contracting executives, assessing their levels of confidence in the industry as well as their concerns going forward.
The third quarter report underscores confidence that there will be increased spending on tools and equipment. After sliding for three quarters, the percentage of American contractors who expect to increase spending on tools and equipment is above 50 per cent. This brings this category, which is reflective of longer-term confidence in the sustainability and profitability of their business, back to pre-2018 levels.
A robust level of contract backlog is also validating the optimistic outlooks for a strong third quarter. High levels of contract backlog contribute to contractor optimism. Current levels are at an all-time high when compared to ideal levels of backlog.
Finally contractors are reporting improved access to financing for commercial building projects. Credit concerns eased as access to commercial loans and lines of credit climbed sharply for the first time in more than 12 months. The report states that profit margin expectations for commercial contractors in this quarter are “higher this quarter than they have been over the past four quarters.” Profits were expected to grow by 12 per cent between the second and third quarters of 2019.
Only 12 per cent of those surveyed anticipate an increased level of difficulty in securing financing. Over 76 per cent of contractors expect access to financing to be as good or better than previous quarters.
The report does reflect some continuing areas of concerns, including the ongoing scarcity of skilled trades labor. Over 61 per cent of respondents indicated difficulty in locating and hiring the number of skilled trades workers they were seeking, especially in western states. Trades such as electricians, carpenters and plumbers continue to be in high demand, as are construction/project managers and engineers.
The shortage of and continued demand for skilled workers is also driving up wages, putting pressure on profit margins. Nonetheless, again this quarter, contractors anticipate hiring increases. These trends are consistent with the second quarter of 2019.
The potentially negative impact of the rapidly shifting trade environment; (ie: tariffs) could also impact the prospects going forward. Although tariffs (including those on the steel industry) have had negligible impact on commercial building projects to date, contractors are anticipating that the impact will grow in the coming months.
Nonetheless, contractor optimism remains high and a growing number of commercial contracting businesses are expressing an optimistic outlook for the upcoming year. Large companies are especially optimistic (71 per cent) although midsize (54 per cent) and smaller (51 per cent) general contractors are largely optimistic as well. New construction opportunities appear to be driving much of the confidence, with public sector spending on infrastructure projects being a key contributor.
Over three million Americans are employed in the commercial construction industry. This sector contributes over $700 billion annually to the American economic engine.
The USG and Chamber of Commerce Report underscores a growing level of confidence amongst America’s commercial building contractors; business will likely remain strong through the rest of 2019 and 2020.
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