Commercial Construction Index 2019 Q1: Construction Labor Shortage | Construction Podcast

The Commercial Construction Index just experienced its first ever decline in all three components. Does this point to signs of trouble? Or is it just fatigue from the recent Government shutdown? Listen to “A Podcast That Builds” host Ben Johnson and Dodge’s Director of Operations in Research and Analytics Anita Gryan discuss the findings from the 2019 Q1 CCI Report, including insights into the construction labor shortage and what it could mean for the construction market. Below is a transcript of this construction podcast.


Ben Johnson:                   

Hello and welcome to A Podcast That Builds where today we have a new guest, Anita Gryan, who is our director of operations in research and analytics. And she's also feeling a little under the weather, but welcome, Anita.

 

Anita Gryan:     

Hi Ben. Thanks for having me.

 

Ben Johnson:                   

And Anita is here to discuss the Q1 2019 Commercial Construction Index, or CCI, report. So, first, can you remind our listeners what exactly the CCI is?

 

Anita Gryan:     

Sure. Every quarter we survey GC's and trade contractors for the US Chamber of Commerce and USG about how they feel about their business. We create the actual Commercial Construction Index by asking them about three things, or revenue expectations, their business backlog and their confidence in being able to secure new business. We also survey them on other issues, like their profit margins, ability to access financing, and other concerns regarding the construction labor shortage. And finally, each quarter we ask about a unique topic or trend to capture how the industry is evolving. Donna, who usually covers this section, will talk about those findings in a separate podcast later this quarter.

 

Ben Johnson:                   

So, what is the current index number and what does that reveal?

 

Anita Gryan:                    

The current Commercial Construction Index number is 72, which is down three points from last quarter, and it's the lowest level we've seen the index at since its inception in 2017. Now, the three components, confidence and new business, was at 71, which fell from 76 in Q4. So that's a five point drop. The backlog component of the index fell to 77, which is down from 80 last quarter. And the revenue expectations are also down a bit. That's at 67 and the Q1 index is down two points from Q4. It's notable that this is the first time that all three components of the CCI moved downward simultaneously.

 

Ben Johnson:                  

So, I guess the obvious question is, what are your thoughts about why all the components of the index are down right now?

 

Anita Gryan:                    

When we saw the results, one of the first things we realized is that the survey was conducted during the federal government shutdown, which was on the news constantly then and had been for a little while. Now, this may have contributed some to the across the board drop as contractors were uncertain how it would all turn out in the end, as were most people in the country, so this may not be a construction market specific effect. But the backlog component has been at the level it's at before and bounced up again. So we've seen it go back and forth. This drop followed two particularly strong quarters at the end of 2018 so it's not clear if this is simply a step back to the long-term average or not. We'll keep a close eye on that piece next quarter. Likewise, the revenue outlook piece of the index has also been at this level before and that's bounced back in the past.

 

Ben Johnson:                

So, do you think this is just a function of the timing of the government shutdown?

 

Anita Gryan:                    

Well, there are two things that still give us some pause that this could be more than a shutdown reaction. The backlog indicator isn't at the lowest level we've seen it since we started. And while the absolute level is still indicating a solid market, it could be that there's just a bit of softening happening. A corollary question we asked in the survey is asking contractors, how are they feeling about their backlog? And in Q1, more contractors dropped out of the feeling positive set into the neutral or negative group than we saw in any of the last four quarters. So this is something to keep a watch on. Also, in the prior three quarters, about 40% of contractors had said that their backlogs increased over the last three months. In Q1 only 28% of the respondents said it had increased. So, something more could be shifting. And the other thing that indicated that it might be more than simply the survey coinciding with the shutdown was the fact that all three components nudge downward together. So while the index overall and the components haven't shown any momentous drop, this might be an early warning there was some softness, or it could be everyone's just taking a breath and then things resume as they were. So we'll watch this closely.

 

Ben Johnson:                   

So, on the another subject covered in the Commercial Construction Index, what about workforce issues and the construction labor shortage? Is that a still a big concern to contractors?

 

Anita Gryan:                    

Yes, it certainly is. The findings here haven't changed much at all. And we still see over 50% of the contractors indicating it's quite difficult to hire skilled workers, and that goes up to 90% when we include those finding it moderately difficult. Over half of those surveyed are still expecting to hire more people over the next six months as well. So this would say to us that even if contractors are truly feeling a bit wary, it's not something they view as an immediate concern.

 

Ben Johnson:                   

That's good. So any last thoughts about what the Q1 2019 CCI reveals about the industry now?

 

Anita Gryan:                    

Well, maybe even more so than past surveys, it shows that contractors, like everyone else, are watching what's going on in the overall environment. So when there's something nationally that creates uncertainty in the country and in general, they will reflect it. There's been a fair amount of unsettling news over the last while. The shutdown was recent, we've got steel tariffs and trade concerns last year. There's workforce issues that have been going on the last few years. So, while the indicators are that these all make it onto the contractor's radar, overall, they do continue to see themselves in a pretty healthy construction market situation. We'll be keeping an eye on it to see how it continues into 2019 and also as this year rolls on and election season picks up steam. We'll see how that affects them as well. So stay tuned.

 

Ben Johnson:                  

All right. Thanks so much for joining us for the first time, Anita. We hope you feel better next time you're on.

 

Anita Gryan:                   

I hope so too. Thank you.

 

Ben Johnson:                  

So that'll do it for this short episode of A Podcast That Builds. You can find a link to the Q1 2019 Commercial Construction Index report in the show notes, or you can go to Dodge's website at construction.com, click on resources and you'll find the report posted there. You can always reach dodge at (877) 784-9556. Thanks again for listening. We'll see you next time.

 

Episode Links:

Q1 2019 Commercial Construction Index Report