The Commercial Construction Index (CCI) is at its highest point since the index was first released by USG Corp. and the U.S. Chamber of Commerce in Q2 2017. The CCI rose three points to 77 in Q3 2019, driven largely by revenue expectations.

The three key drivers of the index all rose or remained at a high this quarter. The ratio between the average current (10.2 months) and ideal levels (12.5 months) of backlog maintained its high level of 82 for the second quarter in a row, meaning that contractors are enjoying a robust level of backlog. Confidence in new business rose two points to 76, which shows that contractors are optimistic that the construction market will remain strong in the near-term. Revenue expectations jumped six points this quarter from 66 to 72, which is the first time this segment has seen an increase in over a year.

Backlog

Backlog levels remain high, with the percentage of contractors reporting an increase in backlog jumping 16 percentage points from Q1 to Q3 2019. The percentage of contractors reporting a decrease in backlog has shrunk from around one quarter to just 14%. According to the CCI, this could be due to the strong construction market paired with labor challenges causing project delays. The index also points out that the contractors who are reporting positive feelings about their backlog are large companies with annual revenues of $100 million or greater (62%) and small companies with annual revenues of less than $10 million (31%).

New Business

Contractor optimism that the next year will bring sufficient business opportunities rose six percentage points from 52% in Q2 2019 to 58% in Q3 2019. However, three quarters of large contractors reported being highly confident in the 12-month outlook while only 51% of small companies and 54% of midsized firms (with an annual revenue between $10-$100 million) reported being highly confident.

The two-year outlook is also strong, but less than the 12-month outlook. Since last quarter, the percentage of contractors reporting being highly confident in the two-year outlook rose two percentage points to 29%. At the same time, there was also an increase of two percentage points in those reporting low confidence, from 4% to 6%. Most contractors (65%) remain in the moderate range. According to the CCI, this suggests that most contractors are not concerned about a deep impending recession but have a more conservative long-term outlook.

Revenue/Profit Margins

For the first time since Q1 2018, a higher percentage of contractors expect an increase in revenue (50%) than those who expect revenue to remain the same (49%). Profit margin expectations climbed sharply from 27% last quarter to 39% of contractors who expect their profits to increase in the next year.

More Trends

Other market trends driving contractor confidence are hiring, skill level, financing and tools and equipment. Sixty-one percent of contractors, including contract glaziers, expect to employ more people in the next six months. However, concern about worker skill levels also remains high with 58% of contractors reporting being concerned. Despite the perception of a skills gap, contractor confidence remains high due to 74% of contractors believing that owner access to financing will become easier or remain the same in the next six months. This is an eight-point increase over last quarter. Fifty-two percent of contractors expect to spend more on tools and equipment over the next six months. This is the first time in a year that this percentage has topped 50%.

Stay tuned to usglassmag.com for a further look at the CCI Q3 2019 report.