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October Construction Backlog Rebounds

Wednesday, November 24, 2021

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The Associated Builders and Contractors recently released its October Construction Backlog Indicator numbers, reporting a rebound having rose to 8.1 from the 7.6 that was recorded in September.

Contractor confidence in sale and profit margins, however, was reported to fall while the index for staffing rose slightly.

“After declining for two months, nonresidential construction backlog bounced back in October,” said ABC Chief Economist Anirban Basu. “But some of the renewed momentum appears to be at the expense of profit margins. ABC’s Construction Confidence Index indicates that the average contractor expects profit margins to dip over the next six months. The implication is that contractors are finding it difficult to pass along all the cost increases caused by higher materials prices.

“Input prices also continue to increase as global supply chain disruptions persist. Rising shipping and trucking costs are further exacerbating the situation by placing additional upward pressure on input prices. Working in conjunction with skills shortages and attendant higher wages, rising input prices are resulting in lofty bids, inducing certain project owners to delay work and even cancel projects altogether in some instances.”

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The Associated Builders and Contractors recently released its October Construction Backlog Indicator numbers, reporting a rebound having rose to 8.1 from the 7.6 that was recorded in September.

The ABC member survey was conducted from Oct. 20 to Nov. 2. The reading is up 0.5 months from September 2021 and 0.4 months from October 2020.

The backlog revealed improved numbers in several sectors over the past month, including:

  • the Commercial & Institutional industry, from 7.8 to 8.3;
  • the Heavy Industrial industry, from 7.5 to 7.6;
  • the Infrastructure industry, from 7.4 to 7.8;
  • the Middle States region, from 6.7 to 6.8;
  • the Northeast region, from 6.6 to 8.7;
  • the West region, from 6.3 to 8.1;
  • the less than $30 million company size, from 6.8 to 7.4;
  • the $30-50 million company size, from 7.8 to 10.2; and
  • the greater than $100 million company size, from 10.6 to 13.2.

However, the backlog did fall in a couple of sectors, including:

  • the South region, from 10.3 to 8.7; and
  • the $50-100 million company size, from 11.1 to 8.9.

Despite the continued drop in backlog and confidence, contractor confidence readings for sales, profit margins and staffing levels all remained above the threshold of 50, indicating expectations of growth over the next six months.

“The good news is that demand for construction services remains elevated despite weaker economic growth and a stalled federal infrastructure package,” said Basu. “With interest rates low and liquidity high, many investors are seeking positive rates of return through investment in real estate and new construction.

“Partially as a result, contractors continue to expect sales and employment to grow in the near term. It may be that many project owners have adjusted expectations about construction costs and are ready to move forward despite them. If that stays true, backlog should continue to rise from current levels.”

Previous ABC Numbers, Recent Construction Input

Last month, ABC released its September Construction Backlog Indicator numbers, reporting that the backlog had inched even lower to 7.6 from the 7.7 that was recorded in August.

Contractor confidence was also down for the second consecutive month.

The ABC member survey was conducted Sept. 20 to Oct. 4. The reading is down 0.1 months from August 2021, but up 0.1 months from September 2020.

The backlog revealed falling numbers in several sectors over the past month, including:

  • the Infrastructure industry, from 7.7 to 7.4;
  • the Middle States region, from 7.4 to 6.7;
  • the Northeast region, from 7.4 to 6.6;
  • the West region, from 7.4 to 6.3; and
  • the less than $30 million company size, from 7.4 to 6.8.

However, the backlog did gain in a few sectors, including:

  • the Heavy Industrial industry, from 5.4 to 7.5;
  • the South region, from 8.9 to 10.3;
  • the $30-50 million company size, from 7.5 to 7.8;
  • the $50-100 million company size, from 10.9 to 11.1; and
  • the greater than $100 million company size, from 10.4 to 10.6.

The commercial and institutional industry remained unchanged for this month.

In August, the backlog reportedly plummeted to 7.7 from the 8.5 that was recorded in July. The ABC member survey was conducted from Aug. 19 to Sept. 1.

The reading was down 0.8 months from July 2021 and down 0.3 months from August 2020.

Falling in most categories over the past month, the backlog revealed:

  • the Commercial and institutional industry, from 8.3 to 7.8;
  • the Heavy Infrastructure industry, from 8.1 to 5.4;
  • the Infrastructure industry, from 11.3 to 7.7;
  • the Northeast region, from 8.2 to 7.4;
  • the South region, from 9.8 to 8.9;
  • the West region, from 9.0 to 7.4;
  • the less than $30 million company size, from 7.9 to 7.4;
  • the $30-50 million company size, from 8.6 to 7.5; and
  • the greater than $100 million company size, from 16.0 to 10.4.

However, the backlog did gain in a few sectors, including the Middle States region (from 7.1 to 7.4) and in companies at $50-100 million (from 10.0 to 10.9).

While the apparent flatline in growth witnessed in both months further suggested a fall in contractor confidence, the ABC reported that the index readings for sales, profit margins and staffing levels remained above the threshold of 50, indicating expectations of growth over the next six months.

   

Tagged categories: Associated Builders and Contractors Inc. (ABC); Business management; Business matters; Construction; COVID-19; Economy; Good Technical Practice; Market; Market data; Market forecasts; Market trends; NA; North America; Projects - Commercial

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