FMI Nonresidential Construction Index at 45.0 for second quarter 2009, but project delays and cancellations increase

August 11, 2010

RALEIGH, N.C. May 15, 2009— The NRCI now stands at 45.0, compared with a reading of 35.6 for last quarter. It appears construction industry executives participating as panelists for the NRCI survey are getting over the shock of the rapid slowdown and are beginning to rethink their markets and strategies. There are some signs of optimism in this quarter’s report, but most panelists expect the remainder of 2009 to be a continuing challenge to find new work and keep from making even deeper staff cuts. Unfortunately, the federal stimulus has yet to be very stimulating for nonresidential contractors. At this time, only 12 percent of industry executives participating in the survey have seen any effects of the American Recovery and Reinvestment Act of 2009 (ARRA).

Delays and cancellations continue to plague the nonresidential construction sector, with few signs that banks are ready to free up credit for private-sector owners. While we received several comments that panelists expect the downturn to get even worse before it gets better, a few expressed their concern that we might be in for a rapid rebound at some point, which will also cause problems scaling back up.

NRCI First Quarter 2009 Highlights

Overall Economy: Panelists’ opinions of the overall economy improved considerably this quarter. Only 39.2 percent thought the economy had worsened since last quarter, compared with 79.6 percent in the first quarter of 2009. However, only 9.1 percent thought the economy was actually improving.

Overall Economy Where Panelists Do Business: Panelists’ opinions of their local economies and markets improved in sync with the overall economy with 46.3 percent agreeing it was the same as last quarter and 42 percent saying it was worse than last quarter.

Panelists’ Construction Business: Last year, when the overall economy was declining, we noted that nonresidential contractors were doing pretty well in comparison. But as of the second quarter 2009, panelists participating in this survey largely agree their business is as slow as business in their overall markets.

Cost of Materials: The reduction in materials costs may be near the bottom as only 58 percent of panelists report material costs as lower compared with 70 percent last quarter.

Cost of Labor: Labor costs, despite slowdowns and layoffs, seem to show early signs of increasing; but only 11 percent report labor costs as higher than last quarter.

Delays and Cancellations: Delays and cancellations continue to plague the industry, but they are no worse than reported last quarter. Still, with delays running at four times what panelists consider a normal rate and cancellations representing 10 percent of backlog, if banks continue to be afraid to make loans, owners will sit on the sidelines, and the recovery will be delayed.

Effects of Stimulus Bill:  With details of the American Recovery and Reinvestment Act of 2009 (ARRA) projects becoming known, nonresidential building contractors are realizing stimulus funds won’t bring an immediate cure for declining backlogs as 88 percent of panelists said they had not yet seen the effects of the stimulus bill. However, 23 percent expect the bill will increase their backlogs as much as 5 percent in the next year.

For more information, please contact Kathryn Robinson at 919.785.9211 or krobinson@fminet.com.

About FMI
FMI is the largest provider of Management Consulting and Investment Banking to the worldwide construction industry.

Founded in 1953 by Dr. Emol A. Fails, FMI delivers innovative, customized solutions to contractors; architects and engineers; construction materials producers; manufacturers and suppliers of building materials and construction equipment; private owners, managers, and developers; residential builders; utility companies; surety companies and industry trade associations.

FMI creates value through enhanced performance of companies, teams and individuals and by mitigating risk.  FMI is headquartered in Raleigh, N.C., and has offices in Denver, Phoenix and Tampa, Fla. For more information, visit www.fminet.com.

Contact: Kathryn Robinson
919-785-9211
krobinson@fminet.com


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