Construction Industry Recovery in Full Swing

Ben Slocum’s article in 2011 posed the question, “Is the Construction Industry Headed for a Recovery?” He presented post-recession data on construction industry unemployment, new construction versus renovations, and changes in construction activity between 2010 and 2011. The analysis suggested there were positive signs for recovery in the non-residential construction industry but forecasted that we would see a slow and steady recovery over the years. Several recent surveys indicate that Ben’s hypothesis in 2011 was right on track. Wells Fargo’s Construction Industry Optimism Quotient, the decline in construction industry unemployment rates, and the Associated Builders and Contractors’ Construction Backlog Indicator all suggest that the construction industry is in recovery mode and will continue to improve in the upcoming years.

According to Wells Fargo Equipment Finance’s 2014 Construction Industry Forecast, “Construction contractors and equipment distributors are optimistic that local non-residential construction activity will improve in 2014 compared to the prior year.” The Construction Industry Forecast surveys construction industry executives on their sentiment toward construction activity in the upcoming year. The Optimism Quotient (OQ) measures the responses in the survey, and it hit a record high of 124 in January 2014. Compared to the all-time low of 42 in 2009, the upward swing of the OQ in recent years strongly suggests that the construction industry is recovering, perhaps slowly and steadily as Ben suggested. This year, it is clear that construction executives are anticipating a substantial increase in non-residential activity and are optimistic about the continued recovery of the industry.

Source: Wells Fargo Equipment Finance annual Construction Industry Forecast

Our article in 2011 also indicated that construction unemployment was improving; the rate was down to 15.6% in June 2011 from a high of 27.1% in December 2008. Throughout the past four years, the unemployment rate has been steadily decreasing at an average of 3 percent per year. The last quarter of 2013 brought the lowest unemployment rates we have seen in over five years. Although we would like to see lower rates than the annual average of 11.3%, the trend strongly suggests that the construction industry is steadily recovering. Ben was right, again!

Source: U.S. Bureau of Labor Statistics

Source: U.S. Bureau of Labor Statistics

Full Stats Here

Associated Builders and Contractors’ Construction Backlog Indicator (CBI) is another index reaching post-recession highs. The CBI reflects the amount of work that contractors will perform in the upcoming months. The last three quarters in 2013 showed a period of progress for nonresidential construction. In the fourth quarter, the CBI was 8.3 months, which is more than three points higher than the average in 2009. According to the CBI averages over the past 3 years, nonresidential construction, especially commercial and institutional construction with the longest backlog (8.91 months), is on the rise. Due to the trend of the rising CBI over recent years and the bitter weather in the first quarter of 2014, we will likely see the CBI continue to rise throughout the year.

Source: Associated Builders and Contractors, Construction Backlog Indicator

Full Article Here

The continued rise of these construction industry indices shows us that the nonresidential construction industry is in full-on recovery mode. Growth has been slow and steady, but construction executives are optimistic about the future of the industry. Unemployment in the industry continues to decrease, and contractors are performing more and more work each year. It looks like Ben’s hypotheses were right in 2011, and we hope this data proves true, too.