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Nonresidential Contractors Remain Upbeat

Nearly 73% Expect Sales to Increase in the Next Six Months

Nonresidential Contractors Remain Upbeat

According to ABC chief economist Anirban Basu, the recent construction spending data indicate that much of the current growth is coming from public projects because of the stabilized state and local government finances resulting from the sustained economic recovery, which means there is more money available to fund infrastructure projects.

The latest Associated Builders and Contractors' Construction Confidence Index found that U.S. construction industry leaders remained upbeat regarding nonresidential construction's near-term prospects.

All three principal components measured by the survey- sales, profit margins and staffing levels - remain well above the breakeven threshold of 50. Nearly 73% of contractors expect sales to rise during the next six months and 68% expect staffing levels to increase further. The CCI (a diffusion index - readings above 50 indicate growth, while readings below 50 are unfavorable) for sales expectations increased from 68.4 to 70.0, but the CCI for profit margin expectations fell slightly from 63.0 to 62.8, as did the CCI for staffing levels, going from 67.4 to 66.8.

"While there continues to be considerable chatter regarding a slowing economy, the need for federal rate cuts and the damaging effects of ongoing trade disputes involving the United States, China, the European Union and India, among others, nonresidential firm leaders continue to expect further construction spending growth," said ABC chief economist Anirban Basu. "Recent data regarding job growth and consumer spending indicate that any economic slowing to date has been mild and that the expansion is set to endure for the next few quarters.

"While profit margin expectations and staffing levels measures declined slightly in May, they remained well above the threshold level of 50," said Basu. "More importantly, these CCI measures likely declined due to economic strength rather than weakness. Firms continue to scramble for talent in the context of an economy offering more job openings than jobseekers. As a result, staffing levels cannot rise rapidly even in the context of elevated demand for workers, and profit margins are negatively impacted by the accompanying rapid rise in compensation costs. However, far more industry leaders expect profit margins to rise than decline.

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November 18, 2019, 8:04 am PDT

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