Indexes indicate future growth in construction despite drop in August

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Updated Sep 26, 2017

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The next 12 months should bring construction growth following a disappointing August, according to three recently released indexes. Destruction from Hurricanes Irma and Harvey, however, are causing additional uncertainty for the industry.

One of those concerns is how the storms will affect the construction industry’s worker shortage.

“Finding skilled workers will be essential to ensure the Gulf region is able to quickly and efficiently rebuild,” says Thomas J. Donohue, president and CEO of the U.S. Chamber of Commerce, which released the Commercial Construction Index on September 18. “Our nation must address our workforce challenges to enable the economy to grow.”

Optimism in commercial construction

The third-quarter Commercial Construction Index shows that 95 percent of contractors surveyed this summer expect revenues to grow or remain stable over the next 12 months. And 93 percent also expect profits to rise or stay the same over the same period.

But the survey by USG Corp. and the US. Chamber of Commerce also indicated that 60 percent of contractors are having difficulty finding skilled workers. Noting that the survey occurred before the storms devastated parts of Texas and Florida, the U.S. Chamber said it would continue to monitor contractor sentiment concerning the shortage.

Architects seeing more billings

Contractors may find some cheer in the recent Architecture Billings Index, which rose in August to 53.7 – up from 51.9 in July.

Any score above 50 indicates increased billings. There is typically a nine- to 12-month lag between design work and construction spending, says the American Institute of Architects, which releases the ABI.

“The August results continue a string of very positive readings from the design professions, pointing to future healthy growth across the major construction sectors, as well as across the major regions of the country,” says AIA Chief Economist Kermit Baker. “Given the focus and discussions around the infrastructure needs of the nation, we expect strong growth in design activity for the coming months and years.”

The index also showed increased billings, averaged over three months, throughout the country and all sectors:

  • Regional indexes were 55.7 for the South, 54.3 for the Northeast, 53.5 for the Midwest and 51.3 for the West.
  • Sector indexes were 57.6 commercial/industrial, 53.8 multifamily residential, 52.4 mixed practice and 50.1 institutional.

New construction starts drop 2 percent

While the commercial construction and architectural billing indexes gauge the possible future, the recent Dodge Index shows a mixed picture of past construction activity.

New construction starts in August dropped 2 percent from the previous month, a disappointment after July’s 6 percent surge. Leading that decline were construction starts on public works and power plants, which dropped 24 percent after rising 26 percent in July; and residential construction, which posted a 1 percent decline due to slowing multi-family housing starts.

Nonresidential starts were the bright spot in the report, showing a 14 percent increase in August.

Despite the drop in most activity, Dodge Data & Analytics, which produces the index, sees potential for a partial rebound in the third quarter, but again, Irma and Harvey introduce a wild card.

According to Robert A. Murray, chief economist for Dodge Data & Analytics:

“It’s believed that total construction starts for the U.S. should be able to register growth for 2017 as a whole, helped by this year’s strength for institutional building, notwithstanding the near term disruption to construction activity caused by Hurricane Harvey in the Houston area and Hurricane Irma in Florida.”