A variety of industrial companies — from Caterpillar Inc. to Honeywell International Corp. to Ingersoll Rand PLC — spent the earnings season painting a murky outlook for a construction industry that provides a significant chunk of their revenue.  

This comes as investors have bet on a rebound by snapping up engineering and construction stocks, driving their shares higher than the industrial sector or the broader stock market. Shares of Acuity Brands, Chicago Bridge & Iron and Thomas & Betts Corp. have all notched gains in excess of 13 percent so far this year. 

Dealmakers are also rushing to put together multi-billion-dollar mergers that rely on a strong construction sector, such as ABB's proposed purchase of Thomas & Betts. 

Manufacturers receive orders for components and machinery well before cranes fill city skylines and bulldozers begin work. So they are often seen as bellwethers, and the cautious tone of key executives could dampen optimism. 

"I don't think we'll see improvement on the new construction side," Honeywell Chief Financial Officer Dave Anderson said in an interview. Instead, he said the company, which makes control systems for large buildings, expects some improvement in the "aftermarket on commercial construction," referring to demand for parts, services or retrofits on existing equipment.

Investors are closely monitoring the timing and strength of a US commercial construction recovery because a large portion of sales for global industrial companies depend on it. An upturn can boost overall sentiment and help CEOs and lawmakers make decisions on investments, jobs, manufacturing capacity and policy.

Even the more enthusiastic voices are, at best, cautiously optimistic. 

"We're just beginning to see commercial construction coming back," Eaton Corp. Chief Executive Sandy Cutler said, projecting 5 percent growth in the non-residential market this year.

Ingersoll Rand on Wednesday forecast flat to lower sales of heating and cooling systems to commercial buildings. Demand for equipment is likely to be stronger in the second half of the year than near-term, CEO Mike Lamach said, adding he aims to reduce the company's reliance on new construction.  

"We have a slightly less optimistic view than other guys in the market," Lamach said in an interview. New construction will be "fairly depressed" in the first half of the year, he said.  
      
SIGNS OF RECOVERY 

While caution rules the day, those bullish on the sector have a growing body of data to remain hopeful. 

US construction spending surged in December to its highest level in 1-1/2 years, and is expected to add to economic growth this year for the first time since 2005. Private construction spending is the highest since December 2009. 

Construction-related employment is at a two-year high of 5.6 million, with the jobless rate dropping almost 5 percentage points since January 2011, though that is still two million jobs below the 2006 peak. 

And a leading indicator of construction spending, the architecture billings index, has pointed to expansion for two consecutive months, amid stronger jobs gains and investment spending, according to the American Institute of Architects (AIA).     

Swiss engineering group ABB's $3.9 billion deal for electrical goods maker Thomas & Betts could be a signal companies are getting more comfortable betting on a construction revival. Thomas & Betts relies on the sector for 40 percent of sales. 

In December, Martin Marietta Materials launched a hostile, roughly $5 billion bid to buy Vulcan Materials Co., with the hope of building the world's largest producer of sand, gravel and other construction materials. Vulcan has rejected the offer.

Still, AIA Chief Economist Kermit Baker, said that key decision makers have plenty of reason to tread carefully when it comes to betting too much on construction's return. 

"There's no guarantee," he said. "We need to see some sustained growth in the economy, and if it were to stall out we could see yet another period of delays." 
    
SLOW GROWTH 

Obstacles include rising oil prices, an ongoing European debt crisis and a still-volatile US housing market. Baker said the headwinds often offset positive indicators, such as low interest rates, better consumer spending and high corporate profits. 

Even if homebuilding rebounds this year it will still be below pre-recession peaks. And Washington has been slow to offer more incentives for key spending projects. 

"While we expect these small improvements in US construction spending, remember it's still depressed," Caterpillar Executive Mike DeWalt told analysts last month. "Housing starts at 700,000 is still very low, and there's no long-term road or infrastructure spending plan that's been approved in Washington yet." 

Caterpillar projected a 1.5 percent increase in infrastructure-related construction and a 5 percent increase in nonresidential building construction this year. 

The combination of positive signs in construction and persistent economic uncertainty has generally fueled a sentiment that growth will be sluggish.  

"Every month feels a little bit better," Baker said. "The tailwinds are starting to surpass the headwinds and if that continues we'll finally see a recovery in commercial construction this year."