2015 1st Quarter Economic Indicator

Year-End Construction Backlog Drop 1 Percent

“According to Associated Builders and Contractors (ABC), the Construction Backlog Indicator (CBI) for the fourth quarter of 2014 declined 0.1 months, or 1 percent. Despite the quarterover- quarter decline, backlog ended the year at 8.7 months, which is still 4.4 percent higher than one year ago.”

“Inconsistent growth in the volume of public work continues to suppress the pace of nonresidential construction; however, private construction momentum continues to build,” said ABC Chief Economist Anirban Basu. “With hotel occupancy rising, office vacancy falling and demand for data climbing exponentially, a number of key private segments are positioned for rapid growth in construction spending this year.”

“There are a number of factors that are likely to be beneficial to nonresidential contractors in 2015,” said Basu. “First, although interest rates were expected to rise after the Federal Reserve ended its third round of quantitative easing, they have actually been trending lower—due to factors such as falling interest rates abroad and a strengthening U.S. dollar—which helps contractors with construction volume and borrowing costs. Second, materials prices have continued to fall—particularly inputs related to the price of oil, iron ore and copper. This also makes it more likely that construction projects will move forward and helps boost profit margins.”

Regional Highlights

  • Average backlog in the South is back above 9 months for the first time since the first quarter of 2014.
  • Though backlog in the West fell sharply during 2014’s final quarter, average backlog remains comparable to where it was a year ago.
  • Both the Northeast and the Middle States registered levels of average backlog unseen during the history of the CBI survey.

Industry Highlights

  • Average backlog in the commercial and institutional category is virtually unchanged over the past year, suggesting the pace of recovery will remain moderate overall.
  • Infrastructure-related spending is likely to be brisk going forward primarily due to improved state and local government fiscal conditions.
  • Heavy industrial average backlog remains in the vicinity of multi-year highs, but these readings do not fully reflect the impact of a stronger U.S. dollar, which may result in a slowdown in export growth and an associated softening in industrial investment.

Adapted from: http://www.abc.org/NewsMedia/ConstructionEconomics/ConstructionBacklogIndicator/tabid/272/entryid/3509/yearend-construction-backlog-drops-1-percent.aspx

Signs of Spring in the March Billings Numbers

“After disappointing results in January and February, billings at U.S. architecture firms showed some signs in March of emerging from their winter doldrums. The national Architecture Billings Index score for the month was 51.7, up from 50.4 in February. More encouragingly, inquiries for new project activity showed a healthy gain, while the index score for new design contracts rebounded to 52.3 after reporting no gain with a 50.0 score in February.

In spite of the overall positive trend in billings activity, there continues to be significant regional diversity. Firms in the Midwest, South, and West all reported growth in billings in March, with all three regions seeing acceleration over February levels. However, firms in the Northeast reported relatively steep declines, with the string of weak numbers extending to seven straight months for firms in this region. Hopefully this downturn will turn out to be a weather-related seasonal episode, in which case we would expect to see growth resuming over the next few months.

By sector, institutional activity continues to recover at a very healthy pace. The ABI for institutional firms was 53.2 for March, and the tenth straight month of growth for this sector. For the past two months, institutional firms have been reporting the strongest growth of any building sector, which holds out promise of a healthy institutional construction market later this year. Commercial firms are also seeing improvement, as the ABI score for these firms was 53.0 for March, reflecting the strongest upturn in billings of the past 18 months. Moving in the other direction, though, is residential firms, which have reported modest billings declines for the past two months.”

– See more at: http://www.aia.org/practicing/AIAB106273

NRCI Fourth Quarter 2014 Highlights

Overall Economy:

After a solid start the first two quarters of 2014, panelists’ opinion of the overall economy has lost some exuberance. The latest reading of this component dropped 2.7 points to a still solid 72.1.

Overall Economy Where Panelists Do Business:

The softer outlook for the overall economy has trickled down to panelists’ local businesses dropping this component 3.2 points to 71.8 this quarter.

Panelists’ Construction Business:

Uncertainty in the overall economy makes it difficult to sustain a growth mode as the index component for panelists’ construction business slipped from 76.6 last quarter to 70.6.

Nonresidential Building Construction Market Where Panelists Do Business:

Still in much better shape than last year, this index component lost 3.1 points to 71.2 this quarter.

Expected Change in Backlog:

Backlogs are still growing, but at a slower rate than earlier in the year. The median backlog had reached 10 months in Q2 and Q3, but is back to nine months, the same as for all of 2013.

Cost of Construction Materials and Labor:

Although the index score for both improved slightly this quarter, the costs of labor and materials are still on the rise, thus holding down the overall NRCI Index score.


The component score for productivity slipped this quarter to its lowest point since the third quarter of 2010. Now at 49.0, it appears that rising labor costs are not being offset by improving productivity; thus it is likely that profitability will take a hit if this becomes a trend.

Adapted from: http://www.fminet.com/media/pdf/forecasts/NRCI_Q4_2014.pdf

These projections are based on assumptions of fact which may not occur, and are speculative in nature. These projections have not been reviewed or approved by independent accountants or legal counsel or other advisors. Such assumptions are subject to variations that may arise in the future and which may be beyond the control of the corporation. Any change or variation in any of the assumptions would change the projected financial statements and analysis. No representation or warranty, express or implied, is intended as to the reasonableness or accuracy of these projections.