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Inaugural Commercial Construction Index highlights sector strength

Commercial construction is in high demand across the country and contractors are confident in the industry trajectory, according to the USG + U.S. Chamber of Commerce Commercial Construction Index, which premiered last month and is based on research from Dodge Data & Analytics in New York. Nearly all contractors surveyed expect revenues from commercial and institutional work to grow or remain stable this year compared to 2016, with 40 percent expecting an increase and only 3 percent expecting a decrease in volume.

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Commercial Construction Index researcher confirm market enthusiasm based on current project activity and average backlogs approaching 10 months. APRIL 2017 PROJECT PHOTO: Concrete Products

Two-thirds of contractors surveyed said they expect to employ more workers in the next six months, indicating growth in a sector with a headcount of about 3 million. But 61 percent of Index respondents reported difficultly finding skilled workers. Contractors report the biggest shortages in the concrete, interior finishes/millwork, masonry, electrical and plumbing trades.

The Index becomes a new quarterly economic indicator designed to gauge what drives commercial construction and its leaders, including specific issues like backlog of work, new business pipeline, revenue projections, workforce, and access to financing. “This was born out of a need to understand the issues that affect commercial construction. The Index will deliver critical insights into the future health of the industry,” says USG Corp. CEO Jennifer Scanlon. “USG is committed to providing solutions for our customers in order to help the entire industry make strong contributions to the U.S. economy. Through the Index we are able to identify areas of strength and pinpoint areas of improvement where industry leaders must focus.”

“The commercial construction industry is a vital engine for the American economy,” adds U.S. Chamber CEO Tom Donohue. “The projected growth uncovered in this research is good news for employers and workers, but there is reason for concern in the lack of qualified talent available in vital specialties. To get our economy growing to its full potential, we must ensure that we have a workforce that is ready to fill the available jobs.”

The Index factors three leading commercial construction indicators—backlog levels, new business opportunities and revenue forecasts—to generate a composite on a scale of 0-100 that serves as an indicator of health for the contractor segment on a quarterly basis. The Q2 2017 composite score was 76, representing continued health in the sector. This composite score is up two points from the Q1 survey, driven primarily by a bump in the ratio between actual and ideal backlog. New business and revenue results also saw slight increases quarter-over-quarter. The composite scores from the three drivers of confidence were:

Backlog: 81, up four points in Q2 over Q1. Contractors’ current average backlog levels represent 81 percent of their ideal backlog levels, up from 77 percent in Q1. On average, contractors currently hold 9.9 months of backlog, while the ideal amount is 12 months.

New business: 77, up two points in Q2. Nearly all contractors continue to report high or moderate confidence in the market. Well over half of contractors (59 percent) reported high confidence in new business over the next 12 months (up from 51 percent in Q1), indicating a shift to higher levels of confidence among some respondents.

• Revenues: 71, up two points in Q2. An overwhelming 96 percent of contractors expect revenues to grow or remain stable in 2017 over 2016. Of those expecting revenue increases, the actual percentage of expected increases varies widely. Forty percent expect revenue increases of 7 percent or more in the next 12 months.

The Index findings are compiled using survey results from contractors within a Dodge Data & Analytics panel of 2,700-plus decision makers from across key facets of the commercial construction industry. This first public report was developed using research from previous quarters, which puts into context the state of contractor sentiment in the U.S. building industry.