Once again, the fourth-quarter Commercial Construction Index, conducted by USG Corp. and the U.S. Chamber of Commerce, found that contractor optimism and backlogs are high. But so are the challenges contractors face, as evidenced by seven straight quarters during which they’ve expressed concern about a still-tight labor pool. Rising material costs, as well as some other industry headwinds, are still a concern in the market.
But, first, there was plenty of good news from contractors in this report.
Confidence was up two points from the third-quarter CCI to 76, with more contractors expecting new business opportunities to develop in the next 12 months. The number of contractors who expect to do some hiring in the next six months was up 4% quarter over quarter to 60%.
The CCI is in line with other reports from organizations like the Associated Builders and Contractors, which also point to healthy pipelines and momentum but also to a growing concern that there won’t be enough skilled trade workers to fill the available slots or that material prices, especially those with the added burden of tariffs, will continue to rise.
Higher steel prices, for example, have been good for domestic steel producers, who have been able to expand thanks to the extra cash coming in after they raised their prices to meet those of foreign suppliers. However, according to a Bloomberg Businessweek report earlier this month, the upward push in pricing is driving up the costs of infrastructure projects and will likely do the same when it comes to any national infrastructure program coming out of Washington, at least while the tariffs are in effect.
The rest of the CCI wasn’t terrible, but full of the market realities that contractors currently face and expect to continue to deal with through the next year and beyond.
For instance, the number of contractors expecting to see revenue growth in the next 12 months held steady at 69% but has decreased slightly since the beginning of 2018. The same goes for backlog. While robust, it was 10 months in the fourth quarter versus 10.3 months in the third.
And while confidence is solid — 98% of contractors report high or moderate confidence for the next 12 months — there has been a decline in the percentage of contractors who have high confidence. In addition, more contractors expected to see revenue increase at the beginning of 2018 than they did in the fourth quarter.
And, of course, the cost of scarce labor remains a primary contractor concern. Concrete, electric, masonry, steel erection, plaster and drywall, glazing, HVAC and interior finish trades are in the highest demand, but contractors are concerned about how much they’re going to have to pay to attract and retain these workers.