The Q4 2019 USG Corporation + U.S. Chamber of Commerce Commercial Construction Index shows confidence levels among contractors are down significantly after a record high last quarter. This quarter, there is a notable decline of six points (from 77 to 71), marking the lowest score since the survey began in 2017.
“The commercial construction industry is a barometer of the broader economy and contractors are indicating slowing economic and investment activity,” said Neil Bradley, U.S. Chamber of Commerce executive vice president and chief policy officer.
Contractors said that labor shortages continue to negatively impact the construction industry, with 89% of contractors reporting having at least a moderate level of difficulty finding skilled workers—a finding that has been consistent since the launch of the Index.
As a result of this persistent skilled labor shortage in construction:
- 80% of contractors say they are asking skilled workers to do more;
- 73% say they are challenged to meet schedule requirements;
- 66% are putting in higher bids for projects; and
- 42% report turning down opportunities for work (down from 49% in Q3).
In fact, almost all contractors (92%) report being moderately or highly concerned about workers having adequate skills levels.
“As we look to 2020, it is clear that to keep the industry and economy growing, we must address our current workforce challenges,” Bradley said. “We need bipartisan policy solutions from Washington that promote practical and reasonable solutions and better prepare America’s workforce for the jobs of today and tomorrow.”
The lower Index score reflects contractors’ lower ratings for revenue expectations, hiring, and profits this quarter. In Q4, expectations about revenue increases among contractors are significantly lower: 36% of contractors expect an increase in revenue this quarter, down from 50% who expected the same in Q3. Hiring plans also fell with 56% of contractors in Q4 expecting to employ more workers, compared to 61% in Q3. Profits were also squeezed with 30% expecting their profit margins to increase over the next 12 months, compared to 39% expecting profit increases last quarter.
Along these downbeat sentiments, contractors remained confident about access to capital, but reported ongoing concerns about the impact of tariffs. The Index found that 76% of contractors believe their access to working capital financing should remain the same and only 9% believe that it may become more difficult over the next six months. But 40% of contractors continue to expect steel and aluminum tariffs to have a high impact on their business for the next three years, consistent with the findings from the previous quarter. Additionally, 69% of contractors expect a moderate impact from product shortages on their work projects.
A final note of caution: while the overall score this quarter is markedly lower than previous quarters, that finding is in comparison to what has been a boom market since the Index launched in 2017. The instability between Q3 and Q4 this year might indicate greater uncertainty among contractors about what to expect over the short term from the construction market, not long-lasting, entrenched pessimism.
Methodology
The Index uses three leading indicators to gauge confidence in the commercial construction industry, generating a composite index on a scale of 0 to 100 that serves as an indicator of the health of the commercial construction contractor segment each quarter.
The Q4 2019 results for the three key drivers were:
Revenue: Revenue expectations declined to 66 this quarter (from 72 in Q3). Over a third (36%) of contractors expect an increase in revenue in the next 12 months.
New Business Confidence: Confidence that the market will provide sufficient new business opportunities slid from 76 down to 72.
Backlog: The average current vs. optimal backlog component fell from 82 to 76. The average months of backlog dropped to 9.3 months (from 10.2 months last quarter).
The USG Corporation + U.S. Chamber of Commerce Commercial Construction Index is a quarterly economic index designed to gauge the outlook for, and resulting confidence in, the commercial construction industry. USG Corporation and the U.S. Chamber produce this Index, along with Dodge Data & Analytics (DD&A), the leading provider of insights and data for the construction industry.