CONFINDEX Rebounds Like Never Before

Mar. 2021

Partial Recovery Plus Additional Stimulus Buoy Spirits

There are certainly many reasons for pessimism among construction financial professionals. Commercial real estate fundamentals have been shattered by the pandemic, especially in hotel, retail, and office segments. Leading indicators such as the Architecture Billings Index suggest that fewer projects are presently being designed. Many continue to await getting the vaccine, with vaccination programs scarcely initiated in many emerging nations. Interest rates are rising as are inflation expectations, and certain materials have become significantly pricier over the past year. State and local government finances have been negatively impacted by the pandemic in many instances, especially among governments that depend disproportionately upon tourism to generate revenues.

Despite these considerations and others, there has never been a sharper recovery in confidence as recorded by the 2021 Q1 Confindex. The Overall Confidence Index rose nearly 13% to a reading of 105 during 2021’s initial quarter, and it is true that the reading is still 12.5% below where it was a year ago, which is consistent with only partial recovery. Nonetheless, the reading is far higher than those registered during the second and third quarters of 2020, which represented lows not experienced since the Great Recession.

The Business Conditions Index expanded by an unprecedented 30% during the year’s first quarter to a reading of 104 (from 80). Though the reading is down 10% from a year ago, construction financial executives have observed substantial improvement in just three months.

How does one reconcile this dramatic improvement with leading indicators suggesting that less design work is presently transpiring? The answer likely lies in an economic recovery that has been far more forceful than many had predicted. That improvement has positioned many projects that had been postponed during earlier pandemic stages to come back to life. Accordingly, while the number of new projects on the drawing board may recover slowly, the return of previously delayed projects has helped to replenish backlog and lift the collective spirits of construction financial professionals.

It may be the case that while certain commercial segments will struggle during the quarters to come, others will more than take up the slack. Construction of data and fulfillment centers has been catalyzed by the crisis. There have also been major industrial and medical center projects transpiring in certain parts of the nation as global supply chains are reorganized and many health care providers invest in augmenting capacity.

Undoubtedly, the recent and ongoing extension of additional fiscal stimulus has also helped to usher forth newfound optimism. President Biden signed the American Rescue Plan Act on March 11, 2021, which supplies significant fiscal relief to state and local governments among other things. Presumably, some of that money will be spent on construction, including school construction.

There’s more; the Biden administration is now focused on an infrastructure package, which promises to accelerate public construction’s recovery during the quarters to come.

The Financial Conditions Index rose to a reading of 106 during the first quarter, up 3% from the previous quarter. While the improvement in this reading was not nearly as dramatic as those registered by other indices, for much of the crisis, financial professionals have not been unduly concerned by the availability of financing. For the most part, the banking system continued to work, though undoubtedly many contractors and developers continue to face tighter lending standards now than a year ago. The Financial Conditions Index is down nearly 14% from its year-ago level.

The Current Confidence Index rose to a reading of 98 during the first quarter of 2021, up 18% on a quarterly basis. Nonetheless, this indicator is down more than any other on a year-over-year basis (-23.4%). Many financial professionals indicate that there are presently fewer projects available for bid, and that those that are available are associated with ferocious competition.

But there is hope. The Year-Ahead Outlook Index rose nearly 9% on a quarterly basis to a reading of 114 and is up 5% from the same period one year earlier. Thus, while current conditions may leave much to be desired, the expectation is that the next year will be associated with solid recovery.

That helps explain that while many contractors expect skills shortages to reemerge over the coming months and material prices to rise, the bulk of respondents expect profit margins to be reasonably stable over the next year. That is indicative of expectations of increased workloads and a degree of restored pricing power.

Looking Ahead

It will be interesting to see how much of the federal assistance to state and local governments will be spent on construction. There are other priorities, of course, including underfunded pensions, raises for public workers, and money devoted to educational systems.

Rising costs of capital represent another risk to an otherwise rosier construction industry outlook. As the global economy comes back to life, sharp increases in materials prices represent yet another threat. So, while there are reasons for optimism, including in the form of massive stimulus and the emergence of the post-pandemic world, it wouldn’t be difficult for financial professionals to conclude that the proverbial glass is still half empty.

Copyright © 2021by the Construction Financial Management Association (CFMA). All rights reserved. This report first appeared in March 2021 on

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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