Category: North Carolina

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.

Productivity:

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.

Construction Backlog Indicator Reaches Another All-Time High

“Associated Builders and Contractors (ABC) Construction Backlog Indicator (CBI) reached a new all-time high during the 3rd quarter of 2014 at 8.8 months, eclipsing the previous all-time high of 8.5 months in the 2nd quarter of 2014. The 2014 3rd quarter backlog is 6.9 % higher than the third quarter of 2013 and the continued growth of backlog during the last six months likely indicates that 2015 will be a strong year of recovery for the nation’s nonresidential construction industry.”

“&Every region of the nation experienced expanding backlog during the 3rd quarter and so did every industry segment,” said ABC Chief Economist Anirban Basu. “Recent data regarding nonresidential construction and employment has shown only sporadic gains, which is consistent with the less optimistic backlog readings registered earlier this year. But the last two quarters tell a positive story that the average nonresidential contractor in America is positioned to get busier.

“Given the recent acceleration in job growth, the improvement in the quality of jobs being added, and a still-accommodative Federal Reserve, the U.S. macroeconomic outlook for 2015 represents the most upbeat assessment of economic prospects during the post-recession period,” said Basu. “The nation has added more than 2.6 million jobs over the past 12 months and, for the first time in six years, the nation’s unemployment rate has dipped below 6%. While there are a number of headwinds, including a still-shaky global economy and a meaningful dip in oil prices that is likely to impact both oil production and related capital spending, most leading indicators remain positive. Lending conditions appear to be easing and a booming stock market has generated both positive wealth and confidence effects.”

Regional Highlights

• Average backlog is up by nearly two full months in the Northeast over the past year and by more than two months in the West. This is consistent with a rapid rebound in many East and West Coast communities that previously were held back by the housing and financial crisis of several years ago.
• Average backlog is at or nearly at a record high in three regions, the Northeast, Middle States, and the West.
• Backlog in the South has not progressed over the past year, but is positioned to expand due to the recent acceleration of economic growth in Louisiana, Georgia, Florida, Texas, and a number of other states.

Industry Highlights

• Based on recent CBI readings, investment in the nation’s industrial sector should be significant in 2015. Once beholden to foreign energy producers, America is now on the verge of becoming the world’s leading oil producer and is already its preeminent provider of natural gas. This is contributing to a significant uptick in investment in the nation’s factories and distribution facilities.
• Consumer spending remains strong and the professional services sector is adding more jobs than any segment of the economy. Not surprisingly, average backlog in the commercial segment remains at a lofty level.
• Rebounding state and local government budgets may help keep backlog rising in the infrastructure segment despite ongoing gridlock at the federal level.

Adapted from: http://www.abc.org/NewsMedia/ConstructionEconomics/ConstructionBacklogIndicator/tabid/272/entryid/2963/construction-backlog-indicator-reaches-another-all-time-high.aspx

Architecture Firms Remain in Growth Mode

“Business conditions at architecture firms remained positive in October, with the national Architecture Billings Index (ABI) score of 53.7. With solid ABI scores for six straight months, a broader recovery in the construction market—particularly regarding nonresidential buildings—seems assured. Since new project inquiries remain strong, and new design contracts continue to build, architecture firms are expected to see a steady flow of new project activity over the coming months.”

“Regionally, firms in the Northeast reported surprisingly weak conditions in October. Conditions were very strong in this region over the summer, with no hint of the recent softening. However, firms in the other three regions of the country are very healthy from a revenue perspective, as firms in each of these regions reported accelerating ABI scores for the month.”

“By specialization, institutional firms continue to report unexpectedly strong growth. Having remained weak since the beginning of the last building downturn, institutional ABI scores have been above 50 for three straight months. Scores for residential firms also remain very high, although they have been easing somewhat in recent months. Commercial/industrial firms are reporting improving business conditions recently, but billings are not accelerating as much as for residential and institutional firms.”

Adapted from: http://www.aia.org/practicing/AIAB10490

NRCI Third Quarter 2014 Highlights

Overall Economy:

NRCI panelists’ view of the overall economy slipped 6.3 points this quarter compared to last quarter; however, the component index is still in growth territory at 74.8, 2.8 points higher than the third quarter 2013.

Overall Economy Where Panelists Do Business:

The economy where panelists do business slipped 6.9 points in line with the overall economy to a score of 75.0.

Panelists’ Construction Business:

Panelists’ outlook for their construction business fell back just 2.5 points to 76.6, still in positive range and six points higher than Q3 2014.

Nonresidential Building Construction Market Where Panelists Do Business:

Panelists see the markets they are working in as a little weaker than last quarter, dropping from 79.3 to 74.2.

Expected Change in Backlog:

Despite some pullback in optimism about the economy and markets, panelists are still expecting backlogs to improve, as the median backlog for the group has moved up from nine months to 10 months for the last two quarters.

Cost of Construction Materials and Labor:

The two components of the NRCI that have had the most influence on the drop in the overall score are the rising cost of materials and strong increase in the cost of labor. On one hand, these components indicate continued difficulty for improving profit margins. On the other hand, increased prices for materials and labor generally indicate business is improving to the point where material and labor can command higher prices and wages.

Productivity:

Productivity improvement can help offset higher costs, and a 1.4-point improvement in this component is a good sign. The challenge for contractors now is finding qualified employees to help maintain and improve productivity now that backlogs are increasing.

Adapted from: http://www.fminet.com/media/pdf/forecasts/NRCI_Q3_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.