Dive Brief:
- The number of high-credit-risk construction firms is down 5.8% from a year ago, to 250,000, and the number of low-risk firms increased by 1.7% to approximately one million, according to U.K.-based credit research firm Creditsafe, Inc.
- The firm also found U.S. construction companies are paying their bills an average of two days earlier than a year ago, which, according to Creditsafe, is "a key indicator of a company’s overall improving cash flow, financial health and credit worthiness."
- Creditsafe also reported there are 2.3% fewer U.S. construction companies in business between last year and this year — a sign the firm considers positive, as it believes the smaller number is an indication of healthier companies entering the market and weaker ones being eliminated.
Dive Insight:
It may seem counterintuitive that fewer construction companies would signal a positive trend, but David Knowles, Creditsafe's marketing director, told The Wall Street Journal, "It means that those that were hanging on have tipped off, so the health of the herd is improved."
Creditsafe's report is the latest in a series of upbeat news for the construction industry. Construction spending and builder confidence have been steadily growing. In addition, Brian Turmail, of the Associated General Contractors of America, told the Journal that Creditsafe's findings match what he has been hearing from AGC members.
"Margins still remain quite tight for a lot of firms, and they’re facing growing pressure in labor costs in many markets," Turmail told The Journal. "But materials costs have remained relatively flat, and some like diesel have actually declined. So it’s not surprising that the credit situation has improved, especially considering that demand has grown quite steadily in many parts of the country for construction services."