Construction Industry Confidence and 2014 Forecast

Engineering News Record’s fourth quarter 2013 summation of construction costs and the confidence of market strength were released at the end of the year. The reports are optimistic and encouraging.

Construction spending is expected to grow 9% in 2014, fueled by a significant increase in residential construction. This continues the trends set in 2013 and indicates a continued recovery from the crash that debilitated most of our industry in 2009 – 2011. Additionally, inflation is expected to be held around 2.5% based on a number of different forecasts.

The Construction Industry Confidence Index (CICI) tied its highest level since the index was started over five years ago. This index mirrors other similar indices. In summary, it looks like there is to be continued resurgence of the market and controlled inflation overall.

The CICI is based on a survey of construction industry executives. Respondents are asked about a number of markets (residential, transportation, healthcare, etc.) and whether they think the market is declining, stable or improving. No market had more than 15% of the respondents feeling the market was declining (the multi-residential market received the most “declining” responses).

Interestingly, labor is estimated to account for 85% of the cost of construction. So, unemployment in the construction industry, which remains around 10%, is a key factor holding construction inflation in check. Improving labor efficiency is clearly a significant opportunity to reduce construction costs.

While the economic signs look promising, it is still a very competitive market. Clients’ schedules get shorter and expectations continue to get higher. It seems like attorneys are creating ever more punitive clauses to insert into their first drafts of the construction contract, drawing out the time and effort it takes to get to a satisfactory agreement. Because of the fragmentation of our industry, it will always be a buyer’s market. I am just happy that there are buyers who need design and construction services, and that we have the opportunity to compete.

Let’s go get ‘em!