Construction executives report an increase in industry confidence in the latest ENR Construction Industry Confidence Index survey. The index rose to 55 this quarter, up from 47 in the third quarter.
The confidence index measures executive sentiment about where the current market will be in the next three to six months and over a period of 12 to 18 months, on a scale of 0 to 100. A rating above 50 shows a market in growth The measure is based on responses from US executives at major general contractors, subcontractors and design firms on ENR’s top lists to surveys sent between Oct. 28 and Dec. 2.
Respondents report significant optimism surrounding the president-elect’s second term. Exactly half of the polls this quarter were received before the election was called and half after. Trust among executives who applied before the election was 47, compared to a rating of 64 for those who applied after.
Confidence in the economy in general increased significantly among both groups, reaching a score of 50 among pre-election candidates and 65 for post-election candidates. The economic index stood at 39 last quarter. In the third quarter, 40.5% of companies expected a declining economy in the future between 3 and 6 months, this quarter only 12.3%.
After falling to a score of 45 last quarter, confidence has rebounded among subcontractors to 59. All submission subcontractors see a stable or improving market in 3-6 months. Confidence among design firms also rose, to 58 this quarter from 55 in the third quarter. GCs and CMs are more cautious, with a score of 51.
All markets in ENR’s routes experienced an increase in optimism, with the exception of the environmental market, although the market sample size is small. Confidence is highest in the energy (a rating of 81), industrial/manufacturing (73) and hospital/healthcare (71) markets. While it’s also a small sample, it’s worth noting that confidence in the oil market rose 19 points to a rating of 68 this quarter.
ENR’s results mirror those of the Construction Financial Management Association (CFMA) Confindex survey in Princeton, NJ. Each quarter, CFMA consults CFOs of general and civil contractors and subcontractors about markets and business conditions. The resulting Confindex is based on four separate financial and market components, each rated on a scale of 1 to 200. A rating of 100 indicates a stable market; higher ratings indicate market growth.
All indices tracked by the Confindex rose by a lockstep between 3 and 4, each rising between 6.4% and 7.5%. The overall Confindex index is up to 116, with the ‘business conditions’, ‘financial conditions’ and ‘current confidence’ indices up to 117, 115 and 111 respectively. The “outlook for the year” index stands at 122, its highest rating since the second quarter of 2017.
Promise or posture?
While comments on the ENR poll are generally positive about the incoming Trump administration, they also express some misgivings about some of his stated policy goals. The president-elect has promised to significantly increase tariffs on the US’s three largest trading partners: Canada, Mexico and China. He has also pledged to carry out mass deportations of undocumented immigrants. It has been estimated that up to 1.5 million of these immigrants work in construction.
“If I’m a contractor, I don’t like these fees. A lot of my materials, a lot of my equipment, is imported,” says Anirban Basu, CFMA advisor and managing director of Sage Policy Group. However, he believes construction executives may see Trump’s tariff promises as a stance rather than a policy.” I don’t think they’re taking Donald Trump literally, but they’re taking him seriously. It’s going to use the enormous purchasing power of the United States to leverage America’s advantage.” The promise of deregulation, particularly in the energy sector, is another positive.
However, Trump’s re-election has changed the outlook for expected interest rate cuts. Two months ago, the Federal Reserve was expected to cut rates six times by 2025, Basu notes. “Currently, the bond market is pricing in roughly two rate cuts next year, with a growing number of economists indicating no rate cuts in 2025,” he says.
The 800-pound gorilla in the room is what will happen to the new administration’s immigration policy. “If I’m a contractor, my number one challenge in recent years has been my workforce. I [undocumented immigrants] they are a source of young, motivated workers who, frankly, work for less than they probably contribute to my company,” says Basu.
While there are logistical and cost barriers that will limit the scope of deportations, the president-elect could penalize companies that employ undocumented migrants more severely than he did during his first term, Sage’s CEO suggests. Again, however, Basu believes construction companies may see the threat of deportations as posturing. “During his first term, enforcement against employers who used undocumented migrants was actually quite light, there was a lot of talk, but enforcement is light,” he says.
