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The Nonresidential Construction Index (NRCI)gained 5.6 points in the first quarter of 2017 according to management consultant FMI. Material and labor costs continue to rise as is indicative of a growing economy. Finding talented people to do the work and improve productivity are among chief concerns in the industry, again this year, and finding qualified superintendents and project managers are among the toughest challenges for 2017. Nearly half of the NRCI panelists indicated they need to replace most critical positions in their companies within the next five years but only 35 percent currently have management succession plans in place.

Current issues summary

Hiring plans for NRCI panelist companies are on par or a bit higher than last year, with 53 percent expecting a 0 to 5 percent increase in full-time direct employees.

The top challenge continues to be hiring top people followed by increasing productivity. Finding profitable work is expected to be a greater challenge than in 2016.

Panelists’ outlook for growth is modest for 2017, but slightly higher than for 2016 at around 2.5 to 5 percent with 11 percent responding expecting over 5 percent growth.

Most panelists’ respond they are applying lean construction practice on nearly half of their projects. The use of Integrated Project Delivery (IPD) is somewhat lower and the use of both practices together on a project is still a small percentage for most companies but shows signs of growth. Most expect it will be three years or more before these practices see widespread use.

Forty-one percent of panelists said they will need successors to replace most critical positions within the next 5 to 10 years. Only 24 percent have ownership transfer plans in place. The top ownership transfer plan by far is “sell to employees.”

NRCI First Quarter 2017 Highlights

Overall economy: The NRCI Index component for the overall economy jumped 15.4 points to a strong showing of 73.8, reflecting improvements in GDP, the recent stock market rally and expectations of business-friendly policy changes.

Overall economy where respondents do business: NRCI panelists were slightly less confident about the business outlook in their local markets compared with the overall economy, but still registered a positive 11.8-point jump to 72.0 for this component of the NRCI Index.

Respondents’ construction business: Panelists’ outlook for their own business improved 8.7 points to a solid 75.3. This is a continuation of a strong business outlook in 2016.

Nonresidential building construction market where respondents do business: Registering an increase over the fourth quarter of 9.1 points to 73.7, panelists are not seeing what was an expected slowdown last quarter.

Expected change in backlog: Backlogs continue to be reported at a median of 12 months and most panelists expect this to continue or improve in the coming months.

Cost of construction materials and labor: With a strong outlook, it is not surprising to see increases in the costs of inputs like construction materials and labor.

Productivity: The component in index for productivity made a positive move to get out of negative territory, but only up to 50.0 points. Increasing productivity is one of the top challenges for construction in 2017.

For more than 60 years, FMI has been a leading management consulting and investment banking firm dedicated exclusively to engineering and construction, infrastructure and the built environment. FMI serves all sectors of the engineering and construction, infrastructure and built environment industries as a trusted advisor.