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LEGALLY SPEAKING:
Market Watch:
Construction Industry on Rebound?

By Matthew J. DeVries and William Geisen

Design Cost Data™ is a leading industry resource for preliminary cost estimating. Whether you are a developer, architect, general contractor, specialty subcontractor, appraiser or other estimator in construction, you undoubtedly have been following the financial trends in our industry. Several recent economic reports indicate that the construction industry finally might be on the rebound. Such news has to be music to the ears of many construction professionals who have been suffering from the economic downturn since early 2008. Recently published data suggests that the worst is over and that the construction market is gradually recovering.

On March 25, 2013, Engineering News Record published the first quarter results for its Construction Industry Confidence Index (“CICI”) survey, which reflected that the CICI surged to 64 points on a scale of 100, representing a growing market. A CICI of 50 demonstrates a stable market. The CICI measures sentiments of construction executives from large construction and design firms around the country, and the survey results reflect the executives’ views on where the market will be in the next 3-6 months and over a 12-18 month period. In 2011, the average CICI was 44; and in 2012, the average CICI was 53.5. The highest rated sectors in ENR’s recent survey results were petroleum, multi-unit residential, power, health care and industrial process-manufacturing. Hopefully, the CICI first quarter results are the start of a growing trend.

The CICI first quarter results are similar to the soon-to-be-published results of the latest Confidex survey from the Construction Financial Management Association. Under CFMA’s system, a Confidex rating of 100 indicates a stable market. For the first quarter of 2013, CFMA’s Confidex rose from 114 to 129 (on a scale of 200). CFMA’s Confidex also shows an upward trend for the overall outlook for 2013.

On March 29, 2013, The Associated General Contractors of America released data which reflects that construction employment expanded in 35 states in February as the construction industry added 48,000 jobs nationally, the largest one-month gain in nearly six years. According to the AGC’s chief economist, expansion will continue for residential and private non-residential construction in 2013. According to the AGC data, Alaska, Hawaii and Texas showed the largest construction employment gains over the past 12 months; while Montana, Arkansas and Rhode Island showed the largest declines.

Construction spending also rebounded in February, according to data released by the AGC on April 1, 2013. The recently released data reflects that construction spending increased by 1.2% in February, 2013 and increased by 7.9% from February, 2012 to February, 2013. The monthly and year-over-year gains were primarily seen in the private residential and non-residential construction sectors. The largest private non-residential categories were power construction and manufacturing construction.

This recent economic data indicates that the worst times for the construction industry might be in the rearview mirror and that construction is finally starting to rebound. We have not polled our construction clients, but, empirically, we get the sense that most of them share in these optimistic reports. Recall that President Kennedy said, “The American, by nature, is optimistic. He is experimental, an inventor and a builder who builds best when called upon to build greatly.” We hope that 2013 is building up to be a great year for you.

About the Authors: Matt and Bill are members of the Construction Service Group of Stites & Harbison, PLLC. Matt lives in Nashville and is the founder of www.bestpracticesconstructionlaw.com. Bill practices nationwide, but has offices in Lexington and Covington, KY. You can reach the authors at mdevries@stites.com or Bill at wgeisen@stites.com
 

 


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