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Nonresidential Construction Index Drops Slightly
But Third-Quarter Forecast Remains Bullish

The Nonresidential Construction Index for the third quarter of 2015 declined a bit, but still remains in very positive territory with an overall reading of 63.6. Corporate executives in the construction industry were asked for their opinions about the prospects for expansion in the months of July, August and September, and beyond.

Construction industry executives are optimistic about third-quarter prospects for building growth in the nonresidential sector, even though an index gauging their sentiments fell slightly.

FMI, a leading provider of management consulting and investment banking services to the engineering and construction industries, said its third-quarter Nonresidential Construction Index (NCRI) dropped 1.3 points to 63.6. Its second-quarter reading was 64.9.

Scores above 50 indicate expansion, while readings below 50 mean contraction. Each NCRI reflects the observations and opinions of construction industry executives nationwide, FMI said in a news release.

The third-quarter results contain mixed information about the current state of nonresidential construction, FMI said. But overall it still means construction executives are bullish about the growth of their businesses in the months of July, August and September, and possibly beyond.

Corporate officials who took part in FMI's survey were asked at least seven questions, and the individual scores for most of these declined.

They were asked to rate the overall economy, a component that dropped to 70.6 from 76.9 in the second quarter. It was at 78.8 in the first quarter.

Panelists offered their opinions about the economies where they do the most business, a metric that declined to 73.3. It stood at 76.7 in the second quarter, and at 78.3 in the first quarter.

The respondents were asked about the state of their own businesses, and this was little changed at 75.7. It was at 76.4 in the second quarter, and at 74.1 in the first quarter.

Corporate executives gave their thoughts about the nonresidential building markets where they do most of their business, and the aggregate score for this question was 75.0. This component has consistently been in the 70s for the last seven quarters, FMI said. It was at 76.4 in the second quarter, and 74.6 in the first quarter.

Respondents were asked about any expected changes in backlog, and this metric dropped to 68.6 from 71.7. It was at 68.5 in the first quarter.

They also gave their opinions about the cost of construction materials and labor, and the combined scored for this was little changed at 12.6. It was at 12.5 in the second quarter, and 22.4 in the first quarter.

Business executives were also asked about any improvements they made in productivity to deal with increases in labor and materials costs. This component declined to 47.6 from 51.0. It was at 50.9 in the first quarter.

"Executives surveyed report difficulties in maintaining productivity while being squeezed by rising material and labor costs," FMI said.

"The construction industry continues to proceed on the recovery track, although it is showing signs of a minor deceleration," Chris Daum, president of FMI, said.

FMI's Nonresidential Construction Index was at 48.4 in the first quarter of 2010, and was consistently in the 50s from the second quarter of 2010 to the first quarter of 2013, ranging from 50.3 to 59.8.

The NCRI was at 60.1 in the second quarter of 2013, and at 60.3 in the third quarter of 2013. Then it dipped to 57.4 in the fourth quarter of 2013.

Since then, scores have been in the 60s, ranging from 62.8 to 65.8. "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," Daum said.

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November 20, 2019, 3:11 pm PDT

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