by Ann Withanee — September 2, 2011—The engineering and construction industry has had a gloomy third quarter, and the next quarter does not have a rosy glow either, according to the latest report by FMI, provider of management consulting and investment banking to the engineering and construction industry.
FMI recently released its Nonresidential Construction Index (NRCI) for the third quarter of 2011. The upshot: NRCI slipped from 58.6 to a still positive 52.4 for the 2011 third quarter. FMI qualifies its findings saying that the survey for the third quarter closed the week before the latest stock market slide. Panelists’ responses clearly indicated their uncertainty in the markets. The survey also suggests a pullback in government construction. Panelists expressed concern at governmental lack of direction affecting decisions to invest in capital improvements.
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 resulting from owner financing difficulties. The response was not much different from that received in the fourth quarter of 2010, except panelists noted that delays were not caused as much by lack of financing now as uncertainty in the market and difficulties of getting projects approved and off the ground.
Fewer cancellations were reported, which the researchers said was due more to not getting projects started as well as contractors taking more care to assure project financing was in place before the project got started.
Participants were asked about the 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 it also amounted to the lack of government recognition of the potential benefits that good infrastructure projects can have on the future of the economy and jobs. If there was one concern reflected in the results this quarter, it was the stifling excess of uncertainty echoed in government’s lack of direction, stifling owners’ decisions to invest in capital improvements and infrastructure, add the researchers.
A copy of the full report is available from the FMI Resources page, upon registration with the company.
