North Carolina Construction News staff writer
The first quarter of 2025 shows a promising outlook for the US construction sector, but a cautionary note for the design side, according to the latest CIRT Sentiment Index. The index, a key indicator of industry sentiment, has climbed to 67.9, up from 64.1 in the previous quarter. This surge reflects a level of optimism not seen since 2021-22.
However, the report by the Construction Industry Round Table (CIRT) and Raleigh, NC-based FMI, its research partner, reveals a significant divergence between overall sentiment and design sentiment. The Design Index has dropped to 61.8 from 71.1, a notable decrease.
“The last time the Design Index and Sentiment Index diverged this significantly was during the economic turbulence of COVID-19 five years ago,” the report states. This trend is particularly noteworthy because the design segment has typically led the market, rising in expanding markets and declining in contracting ones.
“This current divergence could be a signal of something significant and, at the least, suggests that the lag between front-end design activity and its downstream impact on construction has widened,” the report says.
While overall sentiment is positive, CIRT members reported some softening in sentiment across most economic components. This includes the overall U.S. economy, regional economies, and members’ own construction businesses, “although optimism is up for the nonresidential sector.” Despite this, respondents are reporting stronger backlogs and productivity, but also anticipate higher labor and material costs in the coming months.
Backlog levels remain strong, with nearly half of the respondents (48%) reporting backlogs of 19 months or longer. However, firms are facing challenges in meeting this demand, primarily due to labor constraints. In fact, more than half of the respondents indicate labor shortages relative to their backlog needs.
The report provides a detailed look at sentiment across various construction sectors:
Positive outlook: Commercial, office, lodging, education, and healthcare sectors have seen improved sentiment. There’s also continued optimism in residential work, healthcare, education, predesign work, and consulting planning. Manufacturing, industrial, and transportation sectors show particular strength compared to the last quarter.
Concerns: Sentiment has weakened in heavy civil, transportation, and commercial design. Education, along with lodging and office, is expected to remain challenged into next year.
Looking ahead to 2025, the report identifies several key challenges and trends:
Labor availability: This remains the top challenge.
- Geopolitical instability: This has emerged as a growing concern, particularly given recent political transitions.
- Procurement: Technology adoption in procurement remains inconsistent, and decision-making for major projects is often prolonged, with 43% of clients taking more than six months to finalize decisions.
- Selection priorities: Clients prioritize cost and experience in their selection decisions, with quality and innovation being secondary considerations.
- Delivery methods: Design-bid-build remains the dominant delivery method, but there’s increasing interest in alternative models like design-build and construction manager at risk (CMAR), driven by risk transfer, speed to market, and regulatory considerations.