Confidence Off Nearly 40 Percent in Construction/Contractor Industry

The past three months have seen confidence among the construction and contractor industry fall by nearly 40 percent, according to the most recent International Profit Associates Small Business Research Board (IPA SBRB).

“The precipitous drop in confidence among the construction and contracting trades mirrors the concern we have heard from developers and builders about the slowdown in housing purchases and softness in commitments for new commercial projects,” Gregg Steinberg, President of International Profit Associates, the largest privately-held provider of management consulting and professional services to small and medium-sized business in North America.

“This data is alarming, though, both in how quickly the confidence among owners and managers of construction and contracting firms has changed, as well as the steepness of the decline,” Steinberg added. “The confidence of construction and contracting firms, which had greater confidence that the universe of all small businesses just three months ago, has dropped by twice as much.”

The IPA SBRB Construction/Contractor Confidence Index fell to 30.7 for the poll completed in August, down from May’s 49.3 level. This outlook was far more pessimistic than that of all small businesses, which dropped about 20 percent, to 39.3 from 47.3 during the same period, according to the IPA SBRB Small Business Confidence Index (SBCI).

Twenty-six percent of those responding to the Construction/Contractor Confidence Index survey said they had confidence in the general economy, compared to May’s 48 percent. The number of survey participants indicating disappointment with the direction of the economy increased 11 percent, to 38 percent. Nevertheless, 52 percent of the construction and contracting firms responding to the survey indicated that they are estimating revenues for the year will be about the same as last year and 40 percent estimated they would beat their 2005 performance.

In addition, 49 percent of those surveyed said they intend to maintain current workforce levels, while 26 percent said they intend to increase hiring, 14 percent reported intention to decrease hiring and 9 percent being unsure of their plans. Construction and contracting firms are split about the minimum wage, with 49 percent in favor of it being raised, 28 percent opposing a raise and 23 percent unsure.

The cost of materials, energy and fuel costs, and taxes are listed as the three leading business concerns among respondents. The cost of materials was described as the leading concern by 25 percent of participants, unchanged from the previous period. Fifteen percent named fuel and energy as the leading issue, a 3 percent increase over May. Taxes were the leading concern for 14 percent of respondents.

Concerns over the costs of materials appear well founded. NewRoofSite.com reports that all manner of roofing material and supply prices are up 10 to 20 percent over last year. Major shortages in raw material as a result of the damage to southern sea ports from Hurricanes Katrina and Rita have put a strangle hold on roofing material production and other building materials because special handling equipment and procedures are difficult to duplicate in other ports around the country. Much of the raw materials used in production are received from suppliers around the globe through the damaged ports.

The shortage of conventional roofing materials has led to renewed interest in less traditional roofing ideas, such as metal roofing. The large volume of new and repair construction in storm damaged areas, however, means that metal roofing, previously reserved only for commercial buildings, is also in short supply, according to NewRoofSite.com.

The shortage of roofing materials, such as clay and concrete tiles, has spawned a new industry: roofing salvage. With material increasingly difficult to acquire, there are companies that specialize in sorting through discarded roofing materials searching for undamaged, usable materials suitable for use in completing restorations or repairs.

Construction and contracting firms have varied opinions regarding emergency preparedness. The Construction/Contractor Confidence Index indicates that 27 percent of responding construction and contracting firms report having a disaster or emergency plan ready, up 15 percent from the post 2005 hurricane season. Significantly, 72 percent still do not have a plan in place, similar to the 73 percent of all small businesses lacking emergency plans.

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