A Surge of Confidence
By Kathleen Prause and J.D. Harrison
Results from the USG Corp. and U.S. Chamber of Commerce Commercial Construction Index from the second quarter of 2019 indicate that more than half of contractors are highly confident that the market will provide sufficient new business opportunities in the next 12 months.
Overall, the Q2 composite score of 74 — up two points from 72 in the first quarter — shows a vibrant commercial construction sector, although contractors’ revenue expectations slightly decreased.
“The construction industry is a reflection of our country’s broader economic health, so contractor optimism is a great sign for everyone,” said Chris Griffin, president and CEO of USG Corp. “Even so, it is important that we think about solutions to our big challenges, like building a healthy pipeline of new workers and incorporating technology to make our job sites safer and more efficient.”
More than half of contractors (52%) are highly confident about the ability of the market to provide new business opportunities in the next 12 months, an 11% increase over last quarter’s findings. The backlog ratio — comparing contractors’ average current backlog of projects to the ideal amount of work companies would like to take on — reached 82, the highest since the Index launched in 2017. Hiring expectations also recovered between Q1 and Q2 2019, with most contractors (60%) anticipating employing more people in the next six months.
Furthermore, 60% of contractors report confidence that revenue will remain stable. They also expect access to capital to continue, with 66% believing access to financing will get easier or remain the same over the next six months.
In a notable shift from the last three quarters, the number of contractors who report “high concern” about the availability of skilled labor declined to 46% (down from 54% in the first quarter. While confidence in having access to skilled labor shows some improvement, 85% of contractors still express high concerns about the cost of that skilled labor.
For the third time since the launch of the Index in 2017, this quarter’s survey explored sustainability practices in construction. The findings show that the average share of green projects for contractors is declining. This finding is interesting, since other industry studies reveal no slowdown in the number of green construction projects. One explanation may be that the majority of green work is becoming more concentrated among a smaller group of specialized companies. The study shows that green projects are done more frequently by large contractors.
The Index also reports a mismatch between green standards and green incentives, with most contractors (84%) saying they must meet green standards on at least some projects, but fewer than half (47%) take advantage of green incentives. Finally, general contractors report that the most important green attributes swaying their purchasing decisions are energy efficiency (80%), materials without harmful chemicals (65%), and water efficiency (64%).
The Index comprises three leading indicators to gauge confidence in the commercial construction industry, generating a composite index on the scale of 0 to 100 that serves as an indicator of health of the contractor segment on a quarterly basis. The second-quarter results from the three key drivers were:
• Backlog: contractors’ ratio of actual to ideal backlog rose five points (to 82 from 77), hitting its highest point since the Index launched in 2017;
• New business confidence: the level of overall confidence rose three points (to 74 from 71), suggesting a return of optimism about the market’s ability to provide new business opportunities in the next 12 months; and
• Revenue: the revenue score dropped one point (to 66 from 67), although most contractors (60%) expect revenue to remain the same.
Kathleen Prause is director of Corporate Communications for USG Corp., a manufacturer of building products and innovative solutions. J.D. Harrison is executive director for Communications & Strategy at the U.S. Chamber of Commerce.