FMI Releases Nonresidential Construction Index (NRCI) for the Third Quarter, 2010

State and Municipalities Budget Cuts Expected, More Improvement/Alterations Work

RALEIGH, N.C. — At 51.3 for the third quarter of 2010, the NRCI is in growth territory for the second quarter in a row; however, it retreated somewhat from the more positive outlook of 54.5 last quarter, according to FMI Corporation, management consultants and investment bankers to the engineering and construction industry.

States and municipalities are expected to make significant budget cuts due to lower tax revenues next year, and the federal stimulus support for the market will start to wind down over the next year. The concern now is that banks and private investors are sitting back and waiting for stronger signs of economic improvement until they repair their balance sheets.

Although new construction growth is slow to materialize, we asked if owners were showing more interest in improvements and alterations projects. Fifty-nine percent of panelists said owners were increasing their interest in projects for general modernization, energy improvement, green and sustainable upgrades and other projects. This work will not replace new construction business lost in the recession, but will provide new markets for contractors able to focus on this service-oriented work. In fact, we find some strong signs in panelists" comments this quarter that contractors are becoming more customer-service oriented to assure that they win over new customers and retain current ones.

As the economy continues to look for traction, there is a sense we are facing what everyone is referring to as the “New Normal” where slower growth is the norm along with greater uncertainty, especially in global markets.