Quarterly CONFINDEX Readings Improve From Low Levels
One could make the case that not much has changed over the past three months. After all, contractors and the financial professionals who work on their behalf continue to suffer each of the concerns that have dominated 2025, including tariff uncertainty and rising materials prices, labor issues related to shifting immigration policies and long-lived skills shortages, and stubbornly elevated project financing costs. Given all that, one might not have expected any meaningfully burst of enthusiasm from CFMA members.
But the world is filled with surprise and the 2025Q3 CONFINDEX proved no exception. Rather than remain mired in the doldrums, confidence among CFOs and other financial professionals rebounded during the third quarter, with four of five CONFINDEX indices expanding on a quarterly basis. Admittedly, the quarterly improvement was generally modest.
After all, the bigger picture remains muddled, and accordingly each of the five CONFINDEX readings is down on a year-ago basis. Nonetheless, something must have occurred to produce the incremental improvement in sentiment. One can easily spy two such occurrences.
The first is the passage of the One Big Beautiful Bill, or whatever its moniker of the day. The bill represents a large tax cut for American enterprise, including the restoration of 100% bonus depreciation. Business operators in several other U.S. industries have become more upbeat since the bill’s passage.
The other occurrence is a bit of a shift in expectations regarding the future of interest rates. Recent weakness in macroeconomic data, particularly data characterizing U.S. labor market performance, has increased the probability of the Federal Reserve cutting rates in the coming months. Predictably, the combination of expected lower interest rates and lower future tax burdens has resulted in an uptick in confidence among construction financial professionals.
The Overall CONFINDEX reading expanded from 101 to 104 during the third quarter, or by 3%. That is a fairly mild improvement in overall sentiment and confidence continues to remain mired below the year-ago level when the reading stood at 108.
Contractors remain concerned about many issues, including rising construction input prices. A majority of respondents (59.5%) indicate that input prices are worse than a year ago. Not coincidentally, more than half (51.4%) report that profit margins are slightly or significantly worse than a year ago, up more than 10 percentage points from 39% in the previous quarter.
The Current Confidence Index also registered only slight improvement, rising from 95 to 97 on a quarterly basis, or 2.1%. A year ago, that reading stood at a more upbeat 104. Data indicate weakness in a number of construction segments, including lodging, multifamily, and even manufacturing. Undoubtedly, those working in data center and/or power segments are generally more upbeat.
The most significant quarterly gain was registered in the Business Conditions Index, which rose from 96 to 105, or 9.4%. This is often associated with an increase in bidding opportunities. While economic growth has been softening, financial markets have been on a tear, with stock prices pressing higher and initial public offerings becoming increasingly abundant. While the Business Conditions Index is down from a year ago (110), the overall sense the data supply is that overall demand for construction services has only softened a bit thus far and that many contractors continue to be stable financially and otherwise.
The Financial Conditions Index was hardly changed in the third quarter, falling from 105 to 104. While this was the only one of five major indicators to decline on a quarterly basis, this has been the most stable of the indicators and stood at 107 one year earlier. Elevated interest rates were mentioned at least 15 times in respondents’ comments regarding demand for construction services and availability of financing for projects. The share of respondents indicating significant concern regarding availability of financing for projects increased by 3 percentage points to 23% during the third quarter.
Financial conditions are poised to improve going forward. Ironically, today’s economic softness likely translates into faster improvement in financing conditions during the quarters ahead all things being equal.
The all-important Year Ahead Outlook Index rose from 108 to 113 on a quarterly basis, or nearly 5%. A year ago, this index stood at 114. That CFMA member confidence in the future has barely budged over the past year is remarkable given all the news regarding trade wars, workplace raids, tariffs on key construction inputs like steel, aluminum, copper, and vehicles.
Nonetheless, financial professionals are hardly complacent. Only 7% of respondents expect materials prices to be better in a year (down from 14% during the previous quarter) and only 33% expect profit margins to improve. A number of respondents indicated that project owners are demanding lower construction delivery prices and tighter margins, which in turn is putting pressure on the pricing power of subcontractors. That in turn is producing higher risk of subcontractor default, pushing insurance costs higher.
Looking Ahead
One suspects that the key to the future will revolve heavily around the direction of inflation. While the Federal Reserve appears set to engineer several rate cuts during the months ahead, what really matters are the interest rates at which project owners and contractors transact. It is conceivable that even as the short-term rates influenced directly by the Federal Reserve decline, longer-term interest rates will remain stubbornly elevated, anchored by high and perhaps even rising inflation expectations.
About CFMA’s CONFINDEX
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.