Uncertainty in the market and difficulties of getting projects approved are putting the brakes on non-residential construction, according to a survey just released by FMI, a leading provider of management consulting and investment banking to the engineering and construction industry.
The firm’s Nonresidential Construction Index (NRCI) slipped from 58.6 to a still positive 52.4 for the third quarter of 2011. Although the survey closed the week before the stock market slide, the uncertainty in the markets is reflected in the panelists’ responses, the company noted.
Most components of the NRCI are down this quarter as backlogs slipped again from nine months back to just eight months. After setting the question aside for two quarters, the survey asked again about cancellations and delays due to owner financing difficulties. The response was similar to that received at the end of 2010, except panelists noted delays weren’t caused as much by lack of financing now as uncertainty in the market and difficulties of getting projects approved and off the ground. Another factor mentioned was contractors taking more care to assure project financing was in place before the project got started.
The NRCI survey also questioned participants about the current connection between residential construction and nonresidential construction, as well as expected changes in infrastructure construction due to expected government budget cuts. Most panelists said there is still a bond between nonresidential construction activity and residential, but the ties might be weaker than in the past. Nonetheless, few expect there to be a strong recovery for nonresidential construction until residential gets more traction, especially for commercial construction.
Infrastructure construction is expected to pull back in all levels of government. Many panelists noted that this was probably necessary, but also amounted to lack of governments to recognize the job potential benefits of good infrastructure projects on both the economy and overall employment. If there was one concern reflected in the results this quarter, it was the government’s uncertainty and lack of direction, which stifles owners’ decisions to invest in capital improvements and infrastructure.