Oil-Patch Blues
For the CICI survey, execs were asked to assess current and future market prospects in general and in any of 15 market sectors in which they currently work. The big story is the sudden drop in the prospects for the petroleum market.
Petroleum has been the top or second-ranked market sector in the CICI survey for two years. However, in the first quarter, the petroleum-market CICI rating fell 24 points, to 51—marking an essentially a flat market. Many executives are beginning to see projects put on hold, largely thanks to plummeting oil prices.
As part of the CICI survey, ENR asked participants whether the drop in oil prices has had an impact on their markets. Of survey respondents, 30.2% said oil price declines have had a negative impact on their markets. Further, 77% of firms working in the petroleum sector agreed that their markets have declined.
Among the other individual market sectors, the industrial process and manufacturing market, which was the top- regarded market in the last quarter, fell seven points, to a 69 CICI rating. The distribution and warehouse market fell five points, to a 69 rating.
Macroeconomics may be playing a role in these declines. "We have seen lower-than-expected numbers in several economic indicators, such as retail sales and housing starts, which is worrisome in the long term," says Basu.
The growing strength of the U.S. dollar against other currencies also is a concern. "This could have a negative impact on construction in industries that rely heavily on exports," Basu says. Overseas companies have been building U.S. plants to take advantage of cheap energy prices and a skilled and stable workforce. "These companies are now finding the price of investing in the U.S. rising sharply and may reconsider locating here, and some domestic companies may even locate new production facilities offshore," says Basu.
While there are reasons to be wary about the market's long-term prospects, the next year or so still looks bright. This quarter, 38.1% of CICI survey respondents said client's access to funds for project financing was either "somewhat easier" or "much easier" over the past six months, down only slightly from last quarter, when that figure was 39.5%.
Industry executives are confident the market will remain strong over the next year to 18 months. "Even with the drop in oil prices and its impact on that sector, for the overall market, it's full speed ahead," Binstock concludes.
