Wait for It…

September 2023

September 2023 CONFINDEX at 99 — Recession Risks Linger

During the latter stages of the 1940s, Irish playwright Samuel Beckett authored Waiting for Godot in which two characters engage in a variety of philosophical discussions over the course of two Acts while awaiting Godot, who never arrives. For their part, economists have been waiting for recession, with some economists concluding that the long-awaited downturn will not arrive anytime soon, or at least not until after Act II.

Economists have been as surprised by the lack of recession as Vladimir and Estragon were about Godot’s non-appearance. Coming into the year, a near-term recession was all but assured. A PwC survey in November 2022 indicated that most large company CEOs thought a recession would commence within the next six months. It did not happen. Instead, America has put together several solid quarters in 2023, including a blockbuster Q3:2023 that has been associated with plentiful travel, expansive consumer outlays, job creation, stubbornly low unemployment, and strong output growth.

No recession appears imminent in the U.S. construction industry, either. Despite the failures of several prominent banks in March, tightening credit conditions, inflation that remains meaningfully above the Federal Reserve’s target, elevated interest rates, strikes, and threat of a federal government shutdown, a large fraction of construction financial professionals still consider skills shortage to be a leading challenge (74%). That does not sound like an industry poised to enter recession.

But theoretically, if one waits long enough for something conceivable to occur, it will. Construction CFOs and other financial professionals emerged from the third quarter even more pessimistic than during the second. That does not mean that construction is headed for its own recession anytime soon. It only suggests that Godot is getting closer, and perhaps will arrive on our shores by Act III or IV.

Both the Overall CONFINDEX Index and the Current CONFINDEX Index slipped for a second consecutive quarter. Specifically, CFMA’s CONFINDEX Overall Index fell 2% to a reading of 99. The Current CONFINDEX Index slipped by nearly 5% to a reading of 104.

Not surprisingly, the Financial Conditions Index also reflected growing pessimism among industry financial professionals. That sub-index dipped nearly 4% to a reading of 98. Circumstances stand to become more difficult. In recent weeks, several large U.S. banks have sustained downgrades from the likes of Moody’s and S&P Global. With regulators scrutinizing balance sheets and unrealized losses more aggressively, and with banks suffering higher funding costs, credit is positioned to become both more difficult to access and expensive. Among other things, that is not good for project financing.

As is almost always the case, there were countervailing responses. The Business Conditions Index rose 1% in the third quarter to a reading of 102. Perhaps most tellingly, the Year-Ahead Outlook Index expanded to a reading of 94, up from the 92 registered during the second quarter’s survey administration. This improvement can be explained in several ways, including simply the unexpected distribution of responses that accompany any survey. It should also be pointed out that a reading of 94 is low by historic standards (down 5% from a year ago), tying the level observed in December 2008 amidst the global financial crisis. Moreover, despite sporadic quarterly improvement, every CONFINDEX sub-index is lower on a year-ago basis.

Another potential explanation is that even as certain aspects of economic life become more difficult, others offer opportunity, serving to support quarterly advance in the Year-Ahead Outlook Index. This is, after all, the era of the mega-project. Massive projects remain on the drawing board, often financed in whole or in part by government. Manufacturing-related construction continues to advance opportunity in many parts of the nation, including New York, Ohio, Idaho, Arizona, and Texas. Infrastructure projects are also lined up to keep certain contractors busy for years to come.

Nonetheless, there is plenty in this quarter’s CONFINDEX to feed the passions of the glass half-empty crowd. During the third quarter, 49% of respondents indicated that their company’s total backlog was higher than it was a year prior, the first time since early-2021 when a pandemic still raged that the proportion has declined below 50%.

The possibility of more sluggishness is also reflected in responses related to profit margins. While the share of respondents reporting that profit margins are slightly or significantly better than last year rose to 46% from 40% in the prior quarter, the outlook for the year to come is mixed. Looking ahead, 27% of respondents expect their profit margins to grow, while 36% anticipate deterioration. The balance expects margins to remain steady.

Looking Ahead

Many economists continue to wait for Godot (recession). A significant number have simply shifted their recession forecast from 2023 to 2024, otherwise known as erasing Act II and penciling in Act III. There certainly are many economic headwinds, including a Federal Reserve that remains data dependent, uncertainties attributable to next year’s federal elections, a seemingly limitless supply of impeachments and indictments, the trials and tribulations of many commercial real estate segments, overextended consumers, student debt repayment, strife in labor markets, and the simple fact that bad things come to those who wait (long enough).



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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