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Blog/January 4, 2013

NRCI Fourth Quarter 2012 Highlights

Jobs, projects and project funding — that has been the focus of the construction industry since the recession — and, according to our latest reading for the NRCI, the needle hasn’t moved much off center since the beginning of the recession.

Here are some of the highlights from FMI’s Nonresidential Construction Index Report (NRCI), Fourth Quarter, 2012.

Overall Economy: The NRCI index component for the overall economy rose 5.7 points in the fourth quarter to 53.8. A positive move but 19.1 points lower than the high for the year in the second quarter.

Overall Economy Where Panelists Do Business: Closer to home, the index component rose for local markets where panelists do business, but at 56.4 this quarter, it is still 15.2 points lower than the results in Q2.

Panelists’ Construction Business: Improvements in the outlook for the broader economy have not been enough to pull up the component for panelists’ construction business, which dropped 1.6 to 58.3 in the fourth quarter.

Nonresidential Building Construction Market Where Panelists Do Business: At 53.8, there was no change in this component from last quarter.

Change in Backlog: The drop of 1.6 in the expected change in backlog matches panelists’ expectations for their overall business. The component now stands at 56.8.

Cost of Materials: The cost of materials for construction continues to rise as the component dropped 9.2 points to 23.5 this quarter. (Note: As labor and materials costs go up, the index components go down.)

Cost of Labor: At 31.2, the cost of labor is essentially unchanged for the last three quarters. (Note: As labor and materials costs go up, the index components go down.)

Productivity: The productivity index slipped 0.8 points, as improvements seen in the first two years of the recession are now harder to find.

Delays and Cancellations: We last asked panelists about delays and cancellations in the fourth quarter of 2011. The results for the fourth quarter of 2012 show essentially no change. Lack of funding is still the top reason for project delays; but uncertainty in the economy/markets runs a close second, followed by owner budget cutbacks.

Project Size: Related to budget cutbacks, compared with five years ago, panelists are experiencing some downsizing of projects in their markets. Thirty-seven percent said, “Yes. Owners have downscaled projects,” and 22% said, “More projects are being proposed in phases.”

Energy-Related Construction: As the exploration and mining of shale formations for natural gas and oil and other energy-related projects for wind and solar represent the closest thing to a boom in construction, we asked if it has helped to pick up construction in other sectors of nonresidential construction. Forty-five percent of panelists said, “No. There is no boom in energy project in the regions we work in.” However, 12% have seen more activity in related industrial building, and 21% are seeing more activity in commercial construction where there is more energy construction.

Market Opportunities: Looking for pockets of economic improvement, we asked panelists this quarter what their biggest market opportunities for the next six months were. From a wide variety of responses, the two general categories receiving the most mentions were markets for energy/industrial/manufacturing and health care-related projects from assisted living to hospitals.

Office of Federal Contract Compliance Programs (OFCCP):
We asked panelists what their experience has been with OFCCP compliance efforts and audits. Only 20% have had recent experience with the OFCCP compliance efforts. Of that number, 59% would characterize the interaction as rigorous and/or aggressive regarding expectations and requirements of the OFCCP. Comments from panelists on this issue ranged from “not a major issue” to an “Egregious overreach, requiring compliance on projects for which the regulations are not intended or applicable.”

To read this report in its entirety, please go to: http://hale.sg-host.com/media/pdf/forecasts/NRCI_Q4_2012.pdf

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