CFMA WINTER 2018 CONFINDEX REPORT Concern Grows Even As Economy - - PDF document

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CFMA WINTER 2018 CONFINDEX REPORT Concern Grows Even As Economy - - PDF document

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1/24/2018 CFMA WINTER 2018 CONFINDEX REPORT Concern Grows Even As Economy Improves January 24, 2018 Tim Wilson Stuart Binstock National Industry Partner President & CEO BKD National Construction & Real Estate Group Construction

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CFMA WINTER 2018 CONFINDEX REPORT

Concern Grows Even As Economy Improves

Tim Wilson National Industry Partner BKD National Construction & Real Estate Group twilson@bkd.com Stuart Binstock President & CEO Construction Financial Management Association (CFMA) sbinstock@cfma.org

January 24, 2018

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CONFINDEX is CFMA's proprietary confidence index survey of CFOs in the commercial construction sector. It is the only confidence index survey asking the level of confidence from important decision makers in a critical industry of the US economy.

WHAT IS CONFINDEX?

www.cfma.org/confindex

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CONFINDEX is compiled from four sub-indices measuring critical components of the financial health of a commercial construction company:

  • Business Conditions
  • Financial Conditions
  • Current Conditions
  • Current Year Outlook

WHAT IS CONFINDEX?

Measurements Taken Using 8 Questions

  • Current Business Conditions
  • Future (1 year) Business Conditions
  • Current Bank Credit Availability
  • Future (1 year) Bank Credit Availability
  • Future (1 year) Bonding Credit Availability
  • Line of Credit Status
  • Current Backlog
  • Future (1 year) Backlog

WHAT IS CONFINDEX?

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CONFINDEX Survey Panel Composition 300+ randomly selected CFMA General Members with the title of CFO in non-residential construction companies

WHAT IS CONFINDEX?

What the CONFINDEX Number Indicates

  • Built using a “net confidence scoring” approach
  • Measures degree to which there is a more positive or negative
  • utlook among survey panel members
  • Neutral point is set at 100
  • Less than a 100 reading indicates pessimism among the survey

participants, while a reading more than 100 indicates optimism among the survey participants

WHAT IS CONFINDEX?

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QUARTERLY CONFINDEX READINGS SEPTEMBER ‘17 VS. DECEMBER ‘17 INDEX READINGS

SEPTEMBER 2017 DECEMBER 2017 Overall Confidence Index 124 124 Business Conditions Index 128 130 Financial Conditions Index 121 119 Current Confidence Index 128 130 Year Ahead Outlook Index 120 117

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SEPTEMBER ‘17 VS. DECEMBER ‘17 INDEX READINGS

Business Conditions Index is closely tied to estimates of current and future backlog. SEPTEMBER 2017 DECEMBER 2017 Overall Confidence Index 124 124 Business Conditions Index 128 130 Financial Conditions Index 121 119 Current Confidence Index 128 130 Year Ahead Outlook Index 120 117

SEPTEMBER ‘17 VS. DECEMBER ‘17 INDEX READINGS

Financial Conditions Index represents bank credit, bonding credit, and working capital line of credit availability. SEPTEMBER 2017 DECEMBER 2017 Overall Confidence Index 124 124 Business Conditions Index 128 130 Financial Conditions Index 121 119 Current Confidence Index 128 130 Year Ahead Outlook Index 120 117

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SEPTEMBER ‘17 VS. DECEMBER ‘17 INDEX READINGS

Current Confidence Index reflects all current business conditions— levels of bank credit availability, bonding, working capital, and backlog. SEPTEMBER 2017 DECEMBER 2017 Overall Confidence Index 124 124 Business Conditions Index 128 130 Financial Conditions Index 121 119 Current Confidence Index 128 130 Year Ahead Outlook Index 120 117

SEPTEMBER ‘17 VS. DECEMBER ‘17 INDEX READINGS

Year Ahead Outlook Index pertains to anticipated future business conditions, future bank credit, bonding, and backlog. SEPTEMBER 2017 DECEMBER 2017 Overall Confidence Index 124 124 Business Conditions Index 128 130 Financial Conditions Index 121 119 Current Confidence Index 128 130 Year Ahead Outlook Index 120 117

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CONSTRUCTION INDUSTRY BUSINESS CONDITIONS

DECEMBER ‘16 VS. DECEMBER ‘17 DECEMBER ‘17 VS. DECEMBER ‘18

0% 2% 10% 35% 40% 13% 0% 10% 20% 30% 40% 50% Don't Know/NA Significantly Worse Slightly Worse Same Slightly Better Significantly Better 1% 0% 26% 37% 31% 5% 0% 10% 20% 30% 40% Don't Know/NA Significantly Worse Slightly Worse Same Slightly Better Significantly Better

PROFIT MARGINS

DECEMBER ‘16 VS. DECEMBER ‘17 DECEMBER ‘17 VS. DECEMBER ‘18

0% 5% 19% 30% 43% 3% 0% 10% 20% 30% 40% 50% Don't Know/NA Significantly Worse Slightly Worse Same Slightly Better Significantly Better 1% 0% 14% 43% 36% 6% 0% 10% 20% 30% 40% 50% Don't Know/NA Significantly Worse Slightly Worse Same Slightly Better Significantly Better

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CONSTRUCTION MATERIALS’ PRICES

DECEMBER ‘16 VS. DECEMBER ‘17 DECEMBER ‘17 VS. DECEMBER ‘18

3% 7% 51% 33% 5% 0% 0% 10% 20% 30% 40% 50% 60% Don't Know/NA Significantly Worse Slightly Worse Same Slightly Better Significantly Better 3% 4% 55% 35% 2% 0% 0% 10% 20% 30% 40% 50% 60% Don't Know/NA Significantly Worse Slightly Worse Same Slightly Better Significantly Better

BANK CREDIT AVAILABILITY

DECEMBER ‘16 VS. DECEMBER ‘17 DECEMBER ‘17 VS. DECEMBER ‘18

6% 0% 2% 63% 21% 7% 0% 20% 40% 60% 80% Don't Know/NA Significantly Worse Slightly Worse Same Slightly Better Significantly Better 6% 0% 5% 71% 12% 5% 0% 20% 40% 60% 80% Don't Know/NA Significantly Worse Slightly Worse Same Slightly Better Significantly Better

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COMPANY TOTAL BACKLOG REVENUE

DECEMBER ‘16 VS. DECEMBER ‘17 DECEMBER ‘17 VS. DECEMBER ‘18

12% 48% 40% 0% 10% 20% 30% 40% 50% 60% Lower Than About the Same Higher Than 19% 20% 60% 0% 20% 40% 60% 80% Lower Than About the Same Higher Than

AVAILABILITY OF BONDING CREDIT

DECEMBER ‘16 VS. DECEMBER ‘17 DECEMBER ‘17 VS. DECEMBER ‘18

5% 0% 1% 66% 19% 9% 0% 20% 40% 60% 80% Don't Know/NA Significantly Worse Slightly Worse Same Slightly Better Significantly Better 5% 0% 1% 76% 13% 4% 0% 20% 40% 60% 80% Don't Know/NA Significantly Worse Slightly Worse Same Slightly Better Significantly Better

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WORKING CAPITAL LINE OF AVAILABLE CREDIT (DEC ‘16 THRU DEC ’17)

4% 6% 69% 21% 0% 10% 20% 30% 40% 50% 60% 70% 80% Not Applicable Decreased Remained the Same Increased

Rank your level of concern for demand for construction for the upcoming year

  • Not concerned
  • Watching with some concern
  • Very or highly concerned
  • N/a

RANK YOUR LEVEL OF CONCERN

Not concerned Watching Watching with some concern concerned Very or highly concerned

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LEVEL OF CONCERN FOR INDUSTRY CHALLENGES FOR THE UPCOMING YEAR

26% 69% 5%

Demand for Construction Dec. ‘17

Not Concerned Some Concern Very or Highly Concerned

23% 71% 6%

Demand for Construction Sep. ‘17

Not Concerned at All Some Concern Very or Highly Concerned

LEVEL OF CONCERN FOR INDUSTRY CHALLENGES FOR THE UPCOMING YEAR

DEMAND FOR CONSTRUCTION

  • “Good market, think will go into 2019. But waiting for the volatility in

government to end is getting old.”

  • “I am worried about the overall economy slowing down over the next 18

months.”

  • “Length of current market is a concern; this will turn downward at some point in

the next couple of years.”

  • “Non-residential work seems to be fairly competitive - still seems like there is

plenty of supply.”

  • “Local area is saturated now but moving forward, not sure how public side will

affect general construction.”

The comments above are attributed to CONFINDEX respondents and do not reflect the viewpoint of either CFMA or BKD.

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Rank your level of concern for availability of financing for projects for the upcoming year

  • Not concerned
  • Watching with some concern
  • Very or highly concerned
  • N/a

RANK YOUR LEVEL OF CONCERN

Not concerned Watching Watching with some concern concerned Very or highly concerned

LEVEL OF CONCERN FOR INDUSTRY CHALLENGES FOR THE UPCOMING YEAR

40% 55% 3% 2%

Availability of Financing for Projects Dec. ‘17

Not Concerned Some Concern Very or Highly Concerned NA

35% 58% 5% 1%

Availability of Financing for Projects Sep. ‘17

Not Concerned Some Concern Very or Highly Concerned NA

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LEVEL OF CONCERN FOR INDUSTRY CHALLENGES FOR THE UPCOMING YEAR

AVAILABILITY OF FINANCING FOR PROJECTS

  • “As material costs increase, will projects continue to be financeable?”
  • “Concerned longer term with overvaluation of commercial projects possibly

leading to a pull back in financing.”

  • “Interest rates increasing may dampen some of the demand for

commercial construction.”

  • “Evidence of funding is sometimes like pulling teeth.”
  • “Lenders have a lot of red tape for borrowers on construction projects - the

process takes longer and some have had to go to a 2nd bank but in the end they have secured financing.”

The comments above are attributed to CONFINDEX respondents and do not reflect the viewpoint of either CFMA or BKD.

LEVEL OF CONCERN FOR INDUSTRY CHALLENGES FOR THE UPCOMING YEAR

27% 56% 14% 3%

Public Policy Regarding Construction Dec. ‘17

Not Concerned Some Concern Very or Highly Concerned NA

38% 42% 19% 1%

Public Policy Regarding Construction Sep. ‘17

Not Concerned Some Concern Very or Highly Concerned NA

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LEVEL OF CONCERN FOR INDUSTRY CHALLENGES FOR THE UPCOMING YEAR

PUBLIC POLICY REGARDING CONSTRUCTION

  • “Dismantling of the administrative state approach in Washington creating

uncertainty everywhere. Unstable foreign policy could create shocks to the economy.”

  • “Current political arena is volatile, even though administration favors

construction.”

  • “Regulations and code changes continue to make the whole process more

complicated and more expensive.”

  • “Public policy seems to be relaxing.”
  • “The state and federal politics associated with immigration is awful.”

The comments above are attributed to CONFINDEX respondents and do not reflect the viewpoint of either CFMA or BKD.

Rank your level of concern for skills shortages for the upcoming year

  • Not concerned
  • Watching with some concern
  • Very or highly concerned
  • N/a

RANK YOUR LEVEL OF CONCERN

Not concerned Watching Watching with some concern concerned Very or highly concerned

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LEVEL OF CONCERN FOR INDUSTRY CHALLENGES FOR THE UPCOMING YEAR

1% 7% 92%

Skills Shortages Sep. ‘17

Not Concerned Some Concern Very or Highly Concerned

2% 16% 81% 1%

Skills Shortages Dec. ‘17

Not Concerned Some Concern Very or Highly Concerned NA

LEVEL OF CONCERN FOR INDUSTRY CHALLENGES FOR THE UPCOMING YEAR

SKILLS SHORTAGES

  • “There is a shortage of skilled workers, not just in construction but also for

the companies we build for.”

  • “We need to import more labor and skilled trades.”
  • “Lack of quality available skilled field workers are still by far the #1

challenge for the industry.”

  • “Skilled labor is still hard to secure. All trades are passing around the same

labor pool and increased wages are the result.”

  • “We are trying to focus on younger workers and training them in our

trade.”

The comments above are attributed to CONFINDEX respondents and do not reflect the viewpoint of either CFMA or BKD.

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LEVEL OF CONCERN FOR INDUSTRY CHALLENGES FOR THE UPCOMING YEAR

13% 6% 20% 61%

Challenge Not Listed

  • Dec. ‘17

Not Concerned Some Concern Very or Highly Concerned NA

15% 7% 16% 62%

Challenge Not Listed

  • Sep. ‘17

Not Concerned Some Concern Very or Highly Concerned NA

LEVEL OF CONCERN FOR INDUSTRY CHALLENGES FOR THE UPCOMING YEAR

CHALLENGE NOT LISTED

  • “Materials Pricing Changes”
  • “Ability to keep pace with rate of change affecting construction

environment.”

  • “The quality of plans from architects continues to diminish, increasing risk

in the construction process.”

  • “What will the tax reform changes bring to this industry?”
  • “Unreasonable delayed payments both progress and retainage is an ever

growing challenge.”

The comments above are attributed to CONFINDEX respondents and do not reflect the viewpoint of either CFMA or BKD.

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Choose the industry challenge that is of most concern to you

  • Demand for construction
  • Availability of financing for projects
  • Public policy regarding construction
  • Skills shortages
  • Challenge not listed

CHALLENGE QUESTION

Of the “challenges not listed” previously, choose which one you see as your biggest challenge

  • Use of technology
  • Declining work ethic in younger generation
  • Change in the type of work performed
  • Changes in health care
  • Trump administration’s policies

CHALLENGE QUESTION

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QUESTIONS?

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THANK YOU!

FOR MORE INFORMATION Stuart Binstock President & CEO CFMA sbinstock@cfma.org Tim Wilson Partner BKD, LLP twilson@bkd.com

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