Midsize construction firms see a brighter business horizon

Uncertainty about government spending clouds an otherwise positive economic outlook among 59 middle market construction firms polled recently by GE Capital.

Those firms—which average 652 employees and $144.6 million in annual revenue—are particularly confident about U.S. and local markets, though less so about the global arena. Only 12% of those polled said they were “extremely confident” about the condition of global economies, versus 21% who felt the same way about the U.S. economy, and 42% who liked what they were seeing about their local economies. 

The firms’ confidence reflects their financial performance. Seven of 10 respondents reported improvements in their companies’ financials as of September 2014, versus fewer than three in five polled last March. 

However, while half of the construction firms surveyed said they were hiring more people, the number was slightly down from the 57% who were hiring last March. The good news is that nearly half of the firms polled—47%—expect the construction industry to expand through September 2015, during which construction-related employment is expected to increase by 5.4%.

The survey’s respondents see the energy sector as holding out the greatest potential for future construction projects and hiring. Office and residential projects are also expected to be stronger. But a lot of these firms’ optimism seems contingent on public works spending, which “continues to have an immense impact on the industry and is a key consideration in expenditure decisions,” according to GE Capital.

Another factor that is likely to impact construction firms’ profitability is the direction that healthcare costs take. One-third of respondents are anticipating an increasing cost structure. Still, the respondents expect their margins to grow by average of 3.7% over the next year, which greatly exceeds the 0.2% growth that respondents were projecting last March.

GE Capital produces its quarterly surveys in cooperation with the National Center for the Middle Market, a multiyear partnership between GE Capital and Ohio State University’s Fisher College of Business. For more information about construction and other industries, visit gecapital.com/cxosurvey.