CFO Confidence Expands in Early 2023

March 2023

A Newsmaker

There were no massive movements in CFMA’s CONFINDEX readings during the first quarter of 2023. That stability is precisely what renders this quarter’s data so newsworthy. One might have thought that after a year of outsized inflation, geopolitical tensions, and rapidly rising borrowing costs, the state of construction in America would be ragged. Instead, many contractors continue to report significant backlog and seek to acquire more human capital to address it. In short, contractor confidence expanded in early-2023.

The Overall Confidence Index rose 3.9% to a reading of 107 during 2023’s initial quarter. The index had stood at 103 throughout 2022’s latter half. Construction is one of the most interest rate sensitive economic segments. One might have predicted that ongoing monetary tightening would have impacted construction momentum by now. Indeed, in the single-family homebuilding segment, momentum has substantially eroded. But many other construction segments continue to perform as if the Federal Reserve had remained an idle bystander in recent months.

It remains the case that the greatest concern among financial professionals is skills shortages. The proportion of respondents expressing concern regarding the lack of a sufficiently large and trained construction workforce rose from 67% during last year’s final quarter to 78% at 2023’s onset.

As even casual observers know, the Federal Reserve has moved into hyperdrive to combat the bout of excess inflation that kicked off during the spring of 2021. Two years later, inflation remains problematic, with America’s central bank remaining hawkish. Undoubtedly, construction financial professionals have noticed, but remain largely unfazed nonetheless. Indeed, each of the five indices generated by the CONFINDEX survey expanded during the first quarter. That is a rarity.

While higher interest rates are generally not on professional wish lists, lower inflation is. CFOs and other financial professions have spotted some relief from inflation recently. The share of respondents who feel that construction input prices are worse fell from 64% during the fourth quarter of 2022 to just under half (49%) during 2023’s first quarter. Still, only 25% of respondents expect materials prices to improve over the next year.

Significant demand for construction services combined with a more stable (albeit imperfect) supply chain environment contributed to a 1% improvement in the Business Conditions Index to a reading of 104. It would be a mistake, however, to suggest that higher interest rates haven’t played a part in shifting sentiment. While the Business Conditions Index is up on a quarterly basis, it is down nearly 21% from a year ago, before the Federal Reserve began its assault on inflation. What CFOs and others appear to be suggesting is that while higher interest rates have dampened optimism over the past year, the experience of recent quarters suggests that contractors can still prosper in a higher cost of capital environment. Fully 55% of respondents indicated that their company’s backlog is higher than it was a year ago.

That serves as a segue to the Financial Conditions Index, which expanded nearly 6% during the first quarter to a reading of 109. Ironically, this is the only index to have risen over the past year. One might have anticipated a different outcome given tighter monetary policy. It may be that at least some banks have become more willing to extend capital given that they can now charge higher interest rates. It remains to be seen whether the failure of Silicon Valley Bank and some other emerging pressures on the nation’s banking system will dampen financial conditions going forward, but to date, this has not been a leading issue. About one in four respondents express some level of concern regarding availability of financing for projects, unchanged from year-end 2022. The Financial Conditions Index is up nearly 4% on a year-ago basis.

The Current Confidence Index, which reflects how contractors expect the near-term to play out, rose nearly 3% during the first quarter to a reading of 112. While there is weakness in certain commercial segments like office and hotel construction, other segments offer abundant opportunity. At some point, infrastructure dollars will begin to flow more aggressively. There are also many large-scale manufacturing plants under construction or in various stages of development. Healthcare and data centers serve as additional sources of industry growth, though given the rout of technology companies in financial markets, it is conceivable that a meaningful fraction of data center projects will be postponed or scrapped altogether.

But such considerations have not been able to fully dampen the spirits of the nation’s construction financial professionals. The Year-Ahead Outlook Index rose more than 4% during the first quarter to a reading of 100. True, that reading is down 13% from a year earlier, but a key takeaway remains that respondents saw and experienced things during the first quarter that rendered them more upbeat than they were during 2022’s conclusion.

Perhaps what is most remarkable is that many construction firms have become more profitable recently despite higher interest rates, rapidly rising wages, and elevated materials prices. During the most recent survey, 37% of respondents indicated that profit margins had improved. A quarter earlier, that figure stood at 32%.

Looking Ahead

It remains to be seen whether current levels of optimism can persist given tightening monetary policy and growing strains in the nation’s financial system. To date, the industry’s ability to plow through a growing set of headwinds has been simply remarkable.


The CONFINDEX is CFMA’s proprietary confidence index survey that measures the confidence level of leading financial professionals in the U.S. commercial construction sector. 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, and Year-Ahead Outlook. A reading of less than 100 indicates pessimism among the survey participants, while a reading of more than 100 indicates optimism among survey participants.


About the Author

Anirban Basu

Anirban Basu is Chairman & CEO of Sage Policy Group, Inc., an economic and policy consulting firm in Baltimore, MD. He is one of the Mid-Atlantic region’s most recognizable economists in part because of his consulting work on behalf of such clients as prominent developers, bankers, brokerage houses, energy suppliers, and law firms.

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