Confidence falls as cost of materials remains leading issue

Construction industry confidence down 40%

Construction and contractor industry confidence in the economy has dropped by nearly 40%, according to the results of an International Profit Associates Small Business Research Board (IPA SBRB) survey released early third quarter.

The IPA SBRB Construction / Contractor Confidence Index fell to 30.7 for the most recent poll completed earlier this month, down from an index of 49.3 in May. By contrast, this outlook was far more pessimistic than that of all small businesses for which the IPA SBRB Small Business Confidence Index (SBCI) dropped about 20% to 39.3 from 47.3 during the same three-month period.

According to the results of the newly issued survey, 26% said they had confidence in the general economy versus 48% in May. Concurrently, 38% of the respondents in the current poll indicated disappointment with the direction of the economy an increase of 11% from the 27% who expressed that opinion in May.

Nevertheless, 52% of the construction and contracting firms responding to the survey said that they are estimating revenues for the year will be about the same as last year while 40% said they would be better than their 2005 performance.

Of the respondents, 49% said they intend to maintain current workforce levels while 26% said they intend to increase hiring with 14% decreasing hiring and 9% of the construction and contracting firms unsure of their plans.

"The precipitous drop in confidence among the construction and contracting trades mirrors the concern we have heard from developers and builders about the slowdown in housing purchases and softness in commitments for new commercial projects," said Gregg Steinberg, President of International Profit Associates, the largest privately-held provider of management consulting and professional services to small and medium-size businesses in North America.

"This data is alarming, though, both in how quickly the confidence among owners and managers of construction and contracting firms has changed as well as the steepness of the decline," Steinberg added. "The confidence of construction and contracting firms, which had greater confidence than the universe of all small businesses just three months ago, has dropped by twice as much."

The cost of materials, energy and fuel costs, and taxes are listed by the respondents as their three leading business issues. The cost of materials was described by 25% of the participants as the leading concern (the same as the previous period), 15% named energy and fuel as a leading issue—an increase from 3% of the respondents in the May 2006 report. Taxes were listed by 14% as the leading issue.

As far as other areas of interest, construction and contracting firms had varied opinions about being prepared to handle emergencies, whether the minimum wage should be raised and the fate of the estate tax—all of which were similar to the universe of all small to medium-size businesses.

Of the construction and contracting firms, 27% said they have a disaster or emergency plan ready, an increase of 15% from the post 2005 hurricane season. Significantly, 72% still do not have a plan in place (only 1% better than the 73% of all small businesses that do not have such a plan).

Construction and contracting firms are split about the minimum wage, with 49% in favor of it being raised, 28% opposing it and 23% not certain.

The view on estate taxes are mixed as well with 40% opting for them remaining as they are, 31% abolishing them, 14% looking for a "change" and 15% unsure.