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FMI Nonresidential Construction Index Down in the First Quarter 2016: Expectations for a Slowing Economy

FMI’s Nonresidential Construction Index for the second quarter bounced back from 55.6 in the first quarter to a current 61.3. That is a solid recovery, and almost every component of the NRCI moved in a positive direction this quarter. The main exceptions are the costs of labor and construction materials, which are holding down the rise in the NRCI score. Also worth noting, the three-year outlook for most major nonresidential construction markets slipped somewhat from last quarter.

FMI also asked panelists to give their estimations and experience with employee turnover rates, considering the tight labor market. On average, NRCI panelists are experiencing a 6.9 percent rate of turnover for office/management positions and an 8.3 percent rate of turnover for field management positions. FMI’s analysis shows that this is a higher turnover rate for construction than the national average for all industries. In the comments associated with the questions, FMI received a number of reasons for turnover. Some panelists noted they have very little turnover. One of the most cited reasons for turnover at this time was the improved market for job opportunities for younger employees.

NRCI Second Quarter 2016 highlights include the following:

Overall Economy: After dropping 1.9 points last quarter, the index for the overall economy rebounded 8.9 points in the second quarter to a solid 65.4.

Overall Economy Where Panelists Do Business: The economic situation where panelists do business increased 12.6 points in the second quarter to 69.9.

Panelists’ Construction Business: Panelists’ construction business hit the highest point in four quarters at 76.0.

Nonresidential Building Construction Market Where Panelists Do Business: Panelists’ outlook for the markets they work in leads the indexes for NRCI components, improving 13.7 points to 74.3.

Expected Change in Backlog: The expected change in backlog rebounded to 66.1 after a two-quarter slump. The months-in-backlog number has held at 11 months for the last two quarters.

Cost of Construction Materials and Labor: The index for cost of materials dropped 13 points, indicating contractors are seeing higher prices for construction inputs. The cost of labor index also dropped to just 12 points. Both labor and materials cost increases work to keep the NRCI Index score down.

Productivity: While it may not be enough to offset higher prices, productivity made a rare improvement of 3.3 points in the second quarter to 52.4. It would be a good sign if this improvement becomes a trend.

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