Contractors may be losing confidence in the backlog of work they believe they are facing, according to a recent Associated Builders and Contractors members survey. But good news: according to a survey that concluded on March 5, ABC’s Construction Backlog Indicator declined to 8.1 months in February.
The reading is down 1.1 % since February 2023. Even so, ABC said contractors remain confident about the work they will have to tackle over the next year.
Backlog declines slightly
The backlog of work fell in February for every size of contractor, with one exception: those with under $30 million in annual revenue. But over the past year, contractors with more than $50 million in revenues have experienced the greatest decline in backlog, the report said.
“Backlog is declining, and confidence began to fade modestly in February,” said ABC Chief Economist Anirban Basu. “While it is far too early to predict an industrywide downturn given that confidence readings continue to signal growth along sales, employment, and profit margin dimensions, it appears that a rising tide of project cancellations and postponements has begun to make its mark.”
It’s unclear what is driving the project cancellations, but inflation of the U.S. dollar, volatile materials and shipping prices, and other factors constantly impact construction pricing. The same factors could also be impacting the financial sector to some degree, slowing its ability to fund construction projects.
“With excess inflation remaining stubbornly durable, at least according to certain measures, interest rates are poised to remain higher for longer. “That gives higher borrowing costs more time to upset the economic momentum that has so surprised economists over the past two years and has provided support for various nonresidential construction activities,” Basu said.
But it’s hardly all gloom and doom—there’s a lot of positive news. Infrastructure spending through the U.S. federal government is spurring the creation and/or expansion of many projects across the country.
“With so much federal money still entering the economy, there will continue to be support for growth in certain construction segments, including public works and manufacturing-related megaprojects,” Basu said. “But industry weakness is more apparent in segments that rely more purely on private financing.”
ABC’s Construction Confidence Index readings for sales, profit margins, and staffing levels declined, but only slightly in February. All three readings are still above the threshold of 50, which indicates positive expectations for growth, at least through August.
