The FMI Nonresidential Construction Index slipped just 0.4 points in the fourth quarter to 56.9. In the fourth quarter of 2015, the Index stood at 59.5. While the trend indicates a slower outlook for nonresidential construction, the Index is still solidly in positive territory as it has been since the first quarter of 2012. While most of the economic components of the NRCI slipped lower this quarter, backlogs increased from 10 months to 12 months with expectations that backlog growth will continue in the near term. Looking at markets, the outlook continues to be positive for all markets through the next year, but the three-year outlook is less rosy.
Current Issues Summary
- Private sector investment activity was by far the most important positive issue for the business outlook in 2017.
- Trends affecting specific market sectors that panelists work in came in second for potential positive trends.
- The results of the presidential and congressional elections came in third place for the top ranking of No. 1; however, consumer sentiment and spending decisions made a strong showing for No. 2 and No. 3 rankings in importance.
- For the top-ranked potential negative outcomes, the results of the presidential and congressional elections came in first place. The question wasn’t specific to one political party or another.
- The second-ranked concern was unemployment rates. Low unemployment rates have made it more difficult to hire needed workers as well as kept wages higher.
- U.S. monetary policy and interest rates ranked third in negative concerns. The expectation is that the Federal Reserve will increase interest rates in 2017.
NRCI Fourth Quarter 2016 Highlights
- Overall Economy: At 58.5, a gain of just 0.4 points, panelists’ view of the overall economy was little changed over last quarter.
- Overall Economy Where Respondents Do Business: With a drop of just 0.2 points, the NRCI component results for the overall economy where panelists do business is essentially unchanged.
- Respondents’ Construction Business: With a score of 66.7, panelists still view their business as strong, but this is a drop of 4.3 points from the third quarter.
- Nonresidential Building Construction Market Where Respondents Do Business: The fourth quarter results continue to show that construction executives participating in the NRCI believe their construction markets are somewhat stronger than that of the overall economy; however, the score of 64.6 this quarter was a drop of 2.7 points over last quarter.
- Expected Change in Backlog: The median current backlog in months went from 10 months last quarter to 12 months for the fourth quarter. The score for expected change in backlog increased from 58.9 to 61.3 this quarter. While this growth trend seems to run counter to other components, it appears to represent continued momentum from the growth of the past year that should last well into 2017.
- Cost of Construction Materials and Labor: The NRCI components for the cost of materials and labor improved somewhat this quarter; however, both continue to indicate rising costs for construction companies.
- Productivity: Even though our component score for productivity improved 1.6 points this quarter to 48.1, the outlook for improving productivity continues to struggle. Along with growing backlogs, this appears to indicate that finding enough skilled labor continues to be a huge challenge.