This article originally appeared on the PROSALES website.
Despite BlueTarp Financial’s Building Supply Index reaching an all-time high in the third quarter, contractor sentiment is showing significant signs of deterioration, according to the Maine-based credit management company.
The index—based on public data such as consumer sentiment, building permits, and construction spending, along with proprietary data—hit an unadjusted high of 141.83. The seasonally adjusted, 12-month trailing average was also at an all-time high of 134.05, up nearly two points from the second quarter reading.
The index value of 100 is benchmarked to April 2013, and values above 100 reflect healthy economic activity. BlueTarp bases its proprietary data on accounts with more than 120,000 pro customers that it manages for more than 2,000 building material suppliers nationwide.
Macroeconomic data is one of the main drivers for the elevated index reading, according to BlueTarp. Consumer confidence, another strong dirver, reached a reading of 135.3, the highest value in nearly two decades.
However, despite the high value of the Building Supply Index, BlueTarp’s supplemental survey revealed 25% of contractors lack confidence in the future health of the U.S. economy—a 64% increase from the second quarter. Half of contractors are seeing continuing growing sales this quarter when compared to the third quarter last year. The less optimistic outlooks for the future health of the economy stem from contractor concerns over increasing tariffs, interest rates, and excessive borrowing.
“Despite what we’re seeing in consumer confidence, longer-term contractor optimism is showing signs of deterioration,” said Scott Simpson, CEO of BlueTarp. “It’ll be interesting to dig underneath what is changing and if that trend continues. As we’ve said repeatedly, both dealers and contractors should prepare for challenging days to come.”
One of the ways BlueTarp tracks trends is with an X-Y axis chart (above) showing customer performance in terms of both spending and delinquencies. For the past several years, BlueTarp says accounts have been in the Cautious quadrant, in which spending is high, but the delinquency rate is slightly worse than desired.