Opinions of Improving Internal Business Conditions Move Upward After Months of Decline

CAM’s monthly Construction Activity Index (CAA) - the survey of membership’s opinions regarding change in their internal business conditions – compares the months of November and October 2011 and their assessment of the industry’s ninety-day outlook, in the accompanying charts.

Overall in-house activities, as summarized in the All Elements line in Chart #1, show an average of 33% of respondents reporting improvement in November, up from 24% in October. By comparison, 26% signified a decrease in November, down slightly from 27% in October, while 41% identified no change, down from 48% in October.

While the 29% of respondents reported an increase in the number of Project Awards in November, double the proportion in October, only 35% indicated an increase in Projects Bid, down from 50% in October. The drop in the proportion of Projects Bid in November from October is not unusual, in that there is typically a decline in Requests for Bids between October and November. Requests for Bids in November 2011,as tabulated by CAM’s News Department, was 33% lower than in October - not too different from the average October to November 29% drop, in five out of the previous six years.

Only 18% of respondents reported an increase in both the Size of Workforce and Labor Rates in November, up from 7% and 14% respectively, from October, indicating that contractors are continuing to maintain tight control of a significant portion of their cost structure during the current period of a slackening in business volume due slow job growth, low rates of building occupancy and cold weather. The proportion of respondents reporting paying increases for Materials Prices rose to 65% in November, up from 36% in October, and the 62% of responses posted in September.

Respondents’ ninety-day industry outlook is profiled in Chart # 2.

Only 23% of respondents are looking for an increase in Projects to Bid, down from 36% in October, while 23% expect a decrease and 54% foresee no change. Expectations for a rise in Project Awards were also reported by only 23%, about the same as October, whereas 29% project a decrease and 48% forecast no change.

Only 18% expect Labor Rates will rise during the next three months, up from 14% in October, while 12% expect a decrease and 70% predict no change.Only 6% foresee an increased in the Size of the Workforce, while 18% predict a decrease and 76% forecast no change.

53% of respondents expect Materials Prices to continue to increase during the next three months, while only 12% project a decline and 35% projected no change.

In the CAA, 59% of respondents replied that government policies and/or actions were still hindering their activities in November, up from 57% in October, while 41% indicated there was no effect.  

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CAM Construction Activity Index Update: SURVEY FINDINGS ALIGN WITH CAM’S SPENDING PLANS INDEX

Since peaking in May, CAM’s Index of Southeastern Michigan Non-Residential Building Spending Plans Index has been in decline, indicating a reduction in contractors’ backlog of work to be performed in the region as a result of a soft patch in economic momentum. 61% and 58% of respondents, respectively, expressed the expectation in the early March survey - based on what they knew at the time – that there would be an increase in projects bid and project awards across the industry over the next three months from February through May. And that is what happened. In May, the number of projects bid rose18% from February levels, per tabulations by the CAM News Department, and the Spending Plans Index was up nearly 11 times from February’s low level. Then the Index declined in June through September from May’s peak, which is in alignment with the early July through October Survey’s results of respondent’s assessment of their June to September in-house business activity, which is profiled in Chart # 1.

As summarized in the All Elements line in Chart #1, in the October Survey, 22% of respondents reported an increase in the overall aspects of their own business activities in September - the fourth consecutive decline since 49% of survey participants identified an increase in May.  The 22% was comprised of only 6% of respondents reporting growth in project awards, down from 12% in August and 15% in July from its previous peak of 47% in May. 31% specified an increase in projects bid in September, compared with 37% in August, down from 53% in May. No one reported an increase in the size of their workforce in September. But 56% of respondents indicated an increase in prices paid for materials and 18% higher wage rates - neither of which are welcome when contractors are trying to control costs during a slow down in project bid request and project awards activity.

Survey respondents' early October view of the non-residential building industry’s outlook for the next three months are not too different from what has been occurring in their own business activities in recent months, as summarized in Chart # 2.  Only 19% expressed expectation that bid requests would increase during the next three months - the same proportion as the outlook for bid awards. The outlook for the size of the work force and labor rates were even weaker. No one anticipated an increase in jobs, which is normal considering the decline in hiring that accompanies the arrival of cold weather, and only 6% foresaw a rise in labor rates. But a majority, 56%, projected materials prices would continue to increase.

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