Optimism for Engineering Industry Surges In Face of Growing Pessimism on U.S. Economy

 Washington, DC – The ACEC Research Institute released its second quarterly Engineering Business Sentiment study, which surveyed more than 600 ACEC member firm executives to glean insights into their outlook on the engineering and design industry as whole and the nation’s economy today, and what they expect to happen over the next 12 months. Download the survey here.

 The survey uses a “Net Ratings” system, in which the negative responses are subtracted from positive responses. A positive Net Rating indicates optimism and a negative one indicates pessimism. The higher the number, the stronger the sentiment. 

The report paints a distinct picture. The overwhelming majority of firm leaders are “extremely optimistic” about the current state of their firms and the engineering industry, but at the same time their “faith in the future of the U.S. economy dropped.” 

The Net Rating for the current state of firms’ overall finances is a staggering +88 and +82 for the engineering and design services industry today. As a comparison, in the first sentiment survey conducted in October 2021, those numbers were +83 for firm finances and +74 for the industry. 

“The split between our industry when it comes to its optimism about our industry versus the U.S. economy is just breathtaking,” said John Carrato, Chair of the ACEC Research Institute. “Despite looming concerns over inflation or the hiring crunch, the overall sentiment of our industry has been buoyed significantly by passage of the Infrastructure Investment and Jobs Act. Its potential effect on our industry’s outlook cannot be understated.”

Large firms (more than 500 employees) are the most positive about their firm’s finances with an almost unbelievable +98 Net Rating, and small firms (fewer than 25 employees) showed the biggest improvement, climbing 17 points to a +76 Net Rating.

Sentiment about the current state of the U.S. economy dropped 11 points to a +29 rating, but looking ahead 12 months from now, more respondents expect the economy to worsen, pushing the Net Rating into negative territory (-3).

A primary driver in that pessimism is inflation, with 73 percent of respondents saying they are “extremely concerned.” Nevertheless, respondents remain “very optimistic” over the coming 12 months about their firm’s finances (+51) and the overall performance of the design services industry (+42).  

“The numbers tell an interesting story about the post COVID recovery for the engineering industry,” said Joe Bates, a researcher with the ACEC Research Institute. “Throughout the pandemic-driven recession, we saw firms doing better than expected, but it was uneven based on firm size and geography.  Today we are now seeing firms of all sizes and locations even out, which yield the positive net ratings we’re seeing.” 

Given the market optimism, it’s not surprising that two-thirds of firms expect to increase their backlog of projects over the next year. The median backlog stands at 10 months right now and 45 percent of respondents have a backlog of one year or more. 

Looking at specific market sectors, respondents are most optimistic about Roads and Bridges (+67), Water/Wastewater (+59), and Transit (+55) and Airports (+53).  

These sectors’ high ratings are likely a direct reflection of the passage of the Infrastructure Investment and Jobs Act (IIJA) at the end of last year. Respondents are optimistic (+42) that the IIJA will “greatly increase their project opportunities;” but given market pressures, they are less certain (+7) that those projects will “greatly increase the profitability” of their firm. 

The ACEC Research Institute will hold a free live roundtable discussion that will dive deeper into the sentiment study on March 15.  The event will be hosted by the ACEC Research Institute’s Joe Bates and ACEC’s VP of Private Market Resources, Erin McLaughlin.  Click here to register.  You can listen to a podcast interview on the sentiment study with Joe Bates here.