Sunday, February 10, 2019

Construction Industry Financial Update and ABI Check


As we get to mid February many of our contractors 2018 numbers are rolling in, with results showing it was a good year for most.  Net profit margins are above average, with the majority reporting solid financial results for the year.  The challenge isn’t so much finding new work, it’s more finding qualified labor to execute on the abundance of work that is out there.

In construction, we get to see what is ahead in the short/intermediate term by virtue of the backlog as well as bid log, new contracts right around the corner.  Backlogs in our market today are strong, with work being scheduled filling out the balance of 2019 for many contractors with some work being slated for 2020 and even 2021 in some cases in our portfolio.  Prices used to bid new work today are generally designed to yield above average margins with the capacity being limited by already booked backlog.  Times are good for most right now and we should see positive results yet again for the whole of 2019.

The commercial construction market tends to lag the overall economy, which remains strong across the nation by most measures today.  A widely followed leading indicator for the industry is the Architecture Billing Index (ABI).  For more on that index click here… On a national level, the index for December 2018 was 50.4.  For the West region, the score was 49.2, trending up since October 2018.  In a nutshell, billings are reasonably steady, but not growing in the West in Q4 2018.  However activity, especially for those contractors with solid reputations and relationships, has been good in recent times so steady from that vantage point is not a bad thing.  It is interesting to note, however, that the trend line relating to architectural billings from the beginning of 2018 to the end in the West is down.








For 2019 it seems steady as we go with the relative strength we've been enjoying, with an always cautious eye for when the outlook doesn’t seem as rosy.  Always have that “what if the stuff hits the fan” budget ready for sharp revenue declines so you aren’t reactionary when things get tough.

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