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Non Residential Construction on the rise

March 1, 2012

As reported in the Brownfield Renewal Magazine:

The growth trend for nonresidential construction so far in 2012 might bode well if the most recent Nonresidential Construction Index report—reflecting first-quarter 2012—is regarded as a positive harbinger for things to come.
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The NRCI gained 7.8 points over last quarter to 58.1 this quarter, according to FMI, a provider of management consulting, investment banking and research to the engineering and construction industry.

The positive move upward to start the new year is not exactly the sign of a bull market for construction, according to FMI, but it reinforces confirmation that industry people believe that the construction activity is following the lead of the slowly improving economy. There are good signs in hiring plans for 2012, as well as construction-put-in-place predictions. However, panelists indicate that low project pricing and high competition are still driving the market place.

  • Hiring: A five percentage points increase over this time last year, 42 percent of panelists indicated a zero to five percent increase in full-time direct employees. Additionally, fewer panelists indicated a reduction in salaried employees.
  • Construction Put In Place: Expectations for CPIP are positive but cautious, as 41.3 percent of panelists expect growth of 0.5 to 2.5 percent for 2012.
  • Overall Economy: The component for the overall economy showed the strongest improvement of all index components with a jump from 43.6 last quarter to 68.7 in the first quarter, a 25 point gain. This score reflects the improvement in many economic indicators including the unemployment rate.
  • Nonresidential Building Construction Market Where Panelists Do Business: At just 54.9, the local markets for nonresidential construction are inching ahead. However, panelist responses reflect a perception that their own business is performing a bit better than the overall nonresidential construction market. This indicates that local markets are still very competitive.
  • Cost of Materials: Despite a slow economy, material costs continue to rise, with no panelists indicating material costs were lower than last quarter. The cost of materials component moved down nearly 5 points to 26.2. This factor is continuing drag on the overall index and is likely to raise the cost of projects while lowering profit margins for contractors.
  • Cost of Labor: The cost of labor improved just slightly to 41.5, indicating little change over the score of 40.0 last quarter. However, no panelists indicated they were experiencing lower labor costs.
  • Productivity: Contractors are continuing to make moderate gains in productivity. However, at 52.9, this component is still too weak to offset rising costs for labor and materials
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