FMI: Nonresidential Construction Index (NRCI) bounces back in second quarter, indicating solid recovery.

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FMI, based in Raleigh, reports that its Nonresidential Construction Index (NRCI) for the second quarter bounced back from 55.6 in the first quarter to a current 61.3.

“That is a solid recovery, and almost every component of the NRCI moved in a positive direction this quarter,” the management consultants say. “The main exceptions are the costs of labor and construction materials, which are holding down the rise in the NRCI score. Also worth noting, the three-year outlook for most major nonresidential construction markets slipped somewhat from last quarter.”

FMI says it also asked panelists to give their estimations and experience with employee turnover rates, considering the tight labor market. “On average, NRCI panelists are experiencing a 6.9 percent rate of turnover for office/management positions and an 8.3 percent rate of turnover for field management positions. As our analysis shows, this is a higher turnover rate for construction than the national average for all industries. In the comments associated with our questions, we received a number of reasons for turnover. Some panelists noted they have very little turnover. One of the most cited reasons for turnover at this time was the improved market for job opportunities for younger employees.”

Two other current issues were included in this quarter’s survey, FMI says. “The questions that found most agreement concerned the best training delivery methods and the inclusion of safety in training programs. While there is some room for improvement in the amount of safety training for office/management employees, 96 percent of companies said all training for field employees has a safety component.”

The most contentious issue we asked about this quarter was about the understanding of and potential concerns about the so-called “Blacklisting” order (E.O. 13673), which requires firms to disclose any violations of 14 different federal labor and employment laws for the previous three years to be eligible for contracts worth more than $500,000 with the federal government. Surprisingly, only 40 percent of contractors that do federal work were aware that this new rule was set to take effect in 2016. Not surprising was that the majority of comments we received about this new executive order were clearly unfavorable.

NRCI second quarter 2016 highlights

  • After dropping 1.9 points last quarter, the index for the overall economy rebounded 8.9 points in the second quarter to a solid 65.4.
  • The economic situation where panelists do business increased 12.6 points in the second quarter to 69.9
  • Panelists’ construction business hit the highest point in four quarters at 76.
  • Panelists’ outlook for the markets they work in leads the indexes for NRCI components, improving 13.7 points to 74.3.
  • The expected change in backlog rebounded to 66.1 after a two-quarter slump. The months-in-backlog number has held at 11 months for the last two quarters.
  • The index for cost of materials dropped 13 points, indicating contractors are seeing higher prices for construction inputs. The cost of labor index also dropped to just 12 points. Both labor and materials cost increases work to keep the NRCI Index score down.
  • While it may not be enough to offset higher prices, productivity made a rare improvement of 3.3 points in the second quarter to 52.4. It would be a good sign if this improvement becomes a trend.

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