FMI, provider of management consulting and investment banking to the engineering and construction industry, recently announced the release of its Nonresidential Construction Index (NRCI) for the first quarter of 2012. The NRCI gained 7.8 points over last quarter to 58.1 this quarter. This positive move to start the new year is not exactly the sign of a bull market for construction, but continuing confirmation that panelists believe that the construction activity is following the lead of the slowly improving economy, according to the firm. There are good signs in hiring plans for 2012, as well as construction-put-in-place predictions. However, panelists indicate that low project pricing and high competition are still driving the market place.
- Hiring: A five-percentage-point increase over this time last year, 42% of panelists indicated a 0% to 5% increase in full-time direct employees. Additionally, fewer panelists indicated a reduction in salaried employees.
- Construction Put In Place: Expectations for CPIP are positive but cautious, as 41.3% of panelists expect growth of 0.5% to 2.5% for 2012.
- Overall Economy: The component for the overall economy showed the strongest improvement of all index components with a jump from 43.6 last quarter to 68.7 in the first quarter, a 25-point gain. This score reflects the improvement in many economic indicators including the unemployment rate.
- Nonresidential Building Construction Market Where Panelists Do Business: At just 54.9, the local markets for nonresidential construction are inching ahead. However, panelist responses reflect a perception that their own business is performing a bit better than the overall nonresidential construction market. This indicates that local markets are still very competitive.
- Cost of Materials: Despite a slow economy, material costs continue to rise, with no panelists indicating material costs were lower than last quarter. The cost of materials component moved down nearly 5 points to 26.2. This factor is continuing drag on the overall index and is likely to raise the cost of projects while lowering profit margins for contractors.
- Cost of Labor: The cost of labor improved just slightly to 41.5, indicating little change over the score of 40.0 last quarter. However, no panelists indicated they were experiencing lower labor costs.
- Productivity: Contractors are continuing to make moderate gains in productivity. However, at 52.9, this component is still too weak to offset rising costs for labor and materials.