According to a quarterly survey of construction executives in the nonresidential building market from FMI, Raleigh, N.C., contractors have “begun to recover from the initial shock of falling markets and are revamping their strategies to account for current market conditions.” In its second quarter report, the upward movement of the firm's Nonresidential Construction Index (NRCI) from 35.6 in Q1 to 45.0 in Q2 suggests fewer respondents consider the current business climate worse than last quarter, which is a good sign. Although it's too soon to determine if the bottom of the recession will hit in the second quarter, the report indicates that respondents are preparing for more competitive markets until they have a better idea as to whether or not the recession will stretch into 2010 — or if the flood gates will open on a new building boom.
Based on the survey feedback, project cancelations and delays continue at the same pace as last quarter. However, with project delays running at 20% of backlog and cancelations at 10%, FMI says it's safe to assume that many of those owners are not considering their next project until they can get the last one off the ground. Waiting for funds to free up from stimulus money — or banks to be more forthcoming with loans — will inevitably cause an additional drag on the recovery. However, as contractors work to create survival strategies, FMI recommends they must also consider contingency strategies that prepare their companies for the possibility of a rapid recovery for construction.
Although passage of the American Recovery and Reinvestment Act of 2009 (ARRA) promises some economic relief, the survey indicates that nonresidential building contractors are realizing stimulus funds won't bring an immediate cure for declining backlogs. For example, 88% of panelists said they had not yet seen the effects of the stimulus bill. However, 23% expect the bill will increase their backlogs as much as 5% in the next year. Following are a few comments from respondents regarding the effects of the stimulus bill on their businesses:
“As an electrical contractor, we lag market trends by six to nine months. Given the uncertainty as to the timing, location, and size of stimulus-bill projects, it is too early to estimate the impact of the stimulus bill. Our backlog in education and health care projects will definitely increase. However, much of our current backlog is in hotels, casinos, and office buildings where we do not expect substantial help from the stimulus bill. Certainly, as the overall economy improves, our backlog will grow, and we expect to see a positive trend by the second quarter of 2010.”
“It looks like a big false alarm for us. Projects are focused on road building and small “green” retrofits to office buildings — much ado about nothing.”
“Stimulus money for roads and bridges, Medicare, education (training/retention) won't create jobs for plumbers, pipefitters, sheet metal workers, and electricians. While the federal agencies seem to have earmarked funds for states and for specific projects, we've yet to see that money deployed in energy or infrastructure projects. Rather, the shovel-ready work seems to be roads and bridges that were already on the drawing boards (for Iowa, Nebraska and Kansas).”
©2009. Referenced with permission from FMI Corporation, 919.787.8400. For more information, visit www.fminet.com or call Tom Smith at 919.785.9236.