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Construction Confidence Wanes as Nation Approaches Potential Fiscal Cliff

August 23, 2012, 07:00 AM
Filed Under: Construction

Associated Builders and Contractors (ABC) released its newest construction economic measure, the Construction Confidence Index (CCI). The CCI reflects three aspects of the U.S. nonresidential construction industry – sales prospects, staffing levels, and profit margins.
During the second quarter of 2012, all three indices declined, undoing much of the first quarter’s progress and indicating that nonresidential construction momentum is waning.  However, index values remain above 50, indicating ongoing expectations of construction spending growth.

  • Sales expectations fell from 68.3 to 62.3
  • Profit margins fell from 57.9 to 53.5
  • Staffing levels fell from 64.3 to 59.8

"Despite data indicating that the nation is now in its fourth year of economic expansion, the nonresidential construction industry continues to struggle to establish sustained momentum," said ABC Chief Economist Anirban Basu.

"In recent months, nonresidential construction spending levels have barely managed to edge higher, disappointing many contractors. “

"Nonresidential construction firms have become unnerved by the possibility of the nation falling off a fiscal cliff—due to a number of tax increases and spending cuts that take effect at the end of the year—leading the economy back intorecession in 2013," Basu said. "This would limit private nonresidential construction, which is among the nation's most cyclical industries."

A recession also would hammer away at already weak federal, state and local government finances, likely leading to further declines in public spending," said Basu. "For contractor attitudes to improve further, it likely will take someresolution of the fiscal cliff and positive economic data."

CCI is a diffusion index.  Like many of these indices, readings above 50 are favorable and indicate growth, while readings below 50 are unfavorable.
Among the most interesting findings is that the proportion of contractors expecting substantial deterioration in business performance has risen from just 2 percent during the first quarter to nearly 13 percent in the second quarter.

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