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Construction Indicator Suggests Improved Outlook

Friday, May 28, 2010

Associated Builders and Contractors’ (ABC) Construction Backlog Indicator for the first quarter of 2010 showed a 4.5% increase in construction-backlog orders, rising to 6.07 months from the 5.81 months reported for the fourth quarter of 2009.
 
Over the two-month period from February to March of this year, the backlog indicator surged 17%, and stands at 6.05 months, the organization said.

The Construction Backlog Indicator is a forward-looking measure that gauges the amount of construction work under contract to be completed in the future.

“The fact that the CBI is on the rise illustrates that the improvements recently seen in various other indicators, including construction spending, will continue through much of the balance of 2010,” said ABC Chief Economist Anirban Basu. “However, the overall impact of the recession may not be at an end or approaching an end. It remains too soon to tell whether the current momentum will continue through 2011.”

Basu said that since the nonresidential-construction industry tends to lag the overall economy by 12 to 24 months, the expectation is that the construction backlog will remain stable or move up during the next several months. He added, however, that “there are many forces at work that suggest that the sector’s recovery may not be sustained as stimulus monies are steadily drawn down and commercial construction remains weak due to high vacancy rates and tight credit.”

ABC said that, regionally, the Northeast experienced the highest construction backlog at 7.31 months in March 2010. The South and Midwest also have seen a rise in backlog, but it remains lower than at the same time last year. In the West, the backlog stood at 5.76 months in March 2010, roughly the same level as in August 2009, and has yet to demonstrate significant momentum.

Basu said the nonresidential construction industry is in the early stages of a rebound, which is apparent in CBI statistics for the Northeast, South, and Midwest. “However, it appears momentum has stalled in the West, which may be due in part to the prevalence of serious state and local fiscal issues as well as the weak housing market performance,” he said.

Addressing specific construction segments, ABC said the backlog has been roughly flat for several months in the infrastructure category, and was at 9.33 months in March 2010. Backlog in the heavy-industrial and commercial/institutional categories has been on the rise, and was at 6.61 months and 6.31 months, respectively, in March 2010.

Basu said the rise in construction backlog during the first quarter signaled that the nonresidential-construction rebound is spreading beyond government-financed projects

Associated Builders and Contractors is a national association with 77 chapters representing 25,000 merit-shop construction and construction-related firms with two million employees. More information: www.abc.org.