The construction industry isn’t out of the pandemic woods yet, but signs are certainly starting to point in positive directions. Data from the 2021 first quarter U.S. Chamber of Commerce Commercial Construction Index (CCI) shows increasing contractor optimism, primarily driven by a rise in revenue expectations—one of three indicators used to gauge contractor confidence. In fact, the boost in revenue expectations drove a three-point rise in this quarter’s overall Index score to 62 from 59 in Q4 2020. But despite the gains, the CCI remains 12 points below its score of 74 from Q1 2020 before the pandemic.
All three key drivers behind the score—revenue, new business confidence and backlog—rose or remained the same. These three indicators are used to gauge confidence in the commercial construction industry, generating a composite index on the scale of 0 to 100 that serves as an indicator of health of the contractor segment on a quarterly basis. The research in the report was developed with Dodge Data & Analytics by surveying commercial and institutional contractors.
Contractors’ revenue expectations over the next 12 months increased to 57 (up five points from Q4 2020). In the first quarter of this year, 36% of contractors expect their revenue to increase over the next year, a jump of 11 percentage points from 25% in Q4 2020. Eighty-seven percent expect their revenue to either stay the same or increase, up from 86% last quarter. While revenue expectations jumped five points to 57, the overall score is still below the score of 74 in Q1 2020 before the pandemic.
New Business Confidence
The overall level of contractor confidence increased to 59 (up two points from Q4 2020). Most (86%) contractors also report a moderate to high level of confidence that the U.S. market will provide enough new business in the next year. Nearly a quarter (24%) report a high level of confidence, up from 19% in Q4 2020.
The backlog indicator remained steady from Q4 2020 at 69. According to the report, this key driver is the closest of the three to pre-pandemic norms: its score was 76 in pre-pandemic Q1 2020. The average months of actual backlog decreased from 8.4 months in Q4 2020 to 8.0 months in Q1 2021. The optimal average backlog level decreased from 12.2 months to 11.6 months in Q1 2021.
Skilled Worker Shortage
While the CCI does show positive signs of recovery, there are still some workforce challenges. This quarter, 85% of contractors report moderate to high levels of difficulty finding skilled workers, up from 83% in Q4 2020. Of those, 45% report a high level of difficulty, up from 42% last quarter, but still down 10 percentage points year-over-year from 55% in Q1 2020 before the pandemic.
Meanwhile, 88% report a moderate to high degree of concern about their workers having adequate skill levels. Forty-six percent report a high degree of concern, up from 36% in Q4 2020. Almost all (94%) contractors who reported a moderate to high degree of concern expect the problem with workers having adequate skill levels will stay the same or get worse in the next six months.
Hiring plans are also positive as close to half (46%) of contractors say they will employ more people in the next six months, up from 37% in Q4 2020. The same percentage (46%) expect to keep the same number of workers, and just 3% expect to reduce their staffing, down from 12% in Q4 2020.
According to Neil Bradley, U.S. Chamber of Commerce executive vice president and chief policy officer, as vaccines continue to roll out, contractors are expecting to hire more workers and anticipating good times ahead.
“The industry still has a way to go to return to pre-pandemic levels, but rising optimism in the commercial construction industry is a positive sign for the broader economy,” he says. “However, finding skilled workers was a critical issue before the pandemic, and while it has remained a chronic problem over the last year, heightened concern may be emerging again as contractors look to hire.”