Confidence in the Market Begins Slow Rise From Bottom

The construction industry has been suffering for two years through the toughest recession in 20 years, perhaps longer. The depth of the downturn has burned away the industry’s natural optimism, and major firms are taking a hard look at the market and at the U.S. economy. However, they now are starting to believe that a recovery should begin next year.

Recovery may come next year, but it will be too late for many firms

The ENR Construction Industry Confidence Index (CICI) for the first quarter of 2010 shows that executives from 705 construction and design firms are not confident the recession will end in 2010 but that recovery will commence a slow and steady climb this year and into 2011. The index for the first quarter of 2010 rose to 34 on a scale of 100. This is a three-point increase from the previous quarter’s level of 31 and a nine-point increase over the CICI for the first quarter of 2009.

The index measures industry sentiment about the current market and projections about where it will be in three to six months as well as over the next 12- to 18-month period. An index of 50 would mean a stable market. The index is based on responses to surveys sent to more than 2,000 domestic firms on ENR’s lists of leading contractors and engineering firms. The current index is based on a survey conducted over a two- week period earlier this month.

Of the 705 companies responding this quarter, 68% say the current market is declining, 26% believe it has stabilized, and only 5% believe it is improving. Design firms are somewhat more optimistic of a quicker recovery than their contractor peers (see chart).

There continues to be clear winners and losers among individual market sectors. Applying the CICI rating formula, the power market is the healthiest, with a rating of 64. Survey participants also believe that health care (a 61 rating), water and sewer (59), and transportation (55) are stable or about to improve. Markets in environmental work, K-12 and secondary education and petroleum are more neutral, according to firms responding.

Participants were least confident about the commercial office market (20 rating), followed by hotels and hospitality and retail (both at 21), entertainment (24) and distribution and warehouses (26). Multiunit residential moved up to 31, and industrial and manufacturing stood at 38.

CFMA Survey Enters Positive Territory

The uptick in confidence is paralleled by the most recent CONFINDEX survey, about to be released by the Construction Financial Management Association, Princeton, N.J. The group polls 200 chief financial officers from general contractors, subcontractors, and heavy and civil construction firms. “Our CONFINDEX went from 90 to 101 for the first quarter of 2010,” says Peter Schwartz, CFMA president and CEO.

CFMA’s index is based on a scale of 200, with 100...

Gary J. Tulacz has been, since 1993, senior editor in charge of ENR's Top Lists, which bring structure to the huge global construction industry through annual surveys and market analysis of its key segments and major players. The array of surveys rank companies, based both in the U.S. and outside, which perform general contracting, specialty contracting, engineering, architecture and environmental services, among other specialties.

The rankings, based on annual revenue from work at home and abroad, are further divided into specific market categories. Click here for descriptions and schedules of ENR Top List surveys and access to information on current and past listed firms.

Gary also created the ENR Top 100 Green Contractors and Design Firms rankings and the ENR quarterly Construction Industry Confidence Index that measures firm executives' market outlook.

This survey data is used by industry firms and other businesses, government agencies and academics also to gauge the health of the global construction market.

A graduate of Fordham College in New York City and the Fordham University School of Law, Gary previously wrote extensively on employee relations in such areas as labor and immigration law and employee drug testing.

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