Economy Watch: Contractors Expect 2018 to Remain Strong

Despite macroeconomic challenges, nonresidential contractors are optimistic about prospects for the rest of the year, the Associated Builders and Contractors' Construction Confidence Index shows.

Contractors Expect 2018 to Remain Strong

Despite labor shortages and rising interest rates, and emerging concerns about a trade war and construction materials prices, contractors were quite optimistic during first quarter of 2018, according to the Associated Builders and Contractors’ Construction Confidence Index. Each of its three component indices—sales, profit margins and staffing levels—increased during the first quarter and remain well above the threshold reading of 50.

The sales expectations index increased from 67.1 to 72.2 during the first quarter, while the profit margin expectations index was up from 60.7 to 63.4, the organization reported. The index for staffing levels rose from 65.1 to 70.2.

The implication of these numbers, the organization said, is that construction spending data should be quite solid during the next two or three quarters. Nonresidential construction spending downturns generally begin a year or more after broader economic performance begins to wane, and while many economists warn of rising inflationary pressures and greater asset price volatility, contractors nevertheless expect that 2018 will ultimately be a good year.

Separately, the Conference Board reported late last week that its Leading Economic Index for the U.S. increased 0.2 percent in May to 109.5 (2016 = 100), following a 0.4 percent increase in April, and a 0.4 percent increase in March.

The U.S. LEI still points to solid growth but the current trend, which is moderating, indicates that economic activity is not likely to accelerate,” said Ataman Ozyildirim, director of business cycles and growth research at the Conference Board in a statement.