Report Indicates Backlog Slip, Upped Confidence

THURSDAY, JANUARY 20, 2022


The Associated Builders and Contractors recently released its December Construction Backlog Indicator numbers, reporting a slight decrease, having reduced to 8.2 from the 8.4 that was recorded in November.

Contractor confidence in sales, profit margins and staffing levels, however, were reported to increase. According to the ABC, all three indices stand above the threshold of 50, indicating expectations of growth over the next six months.

“Demand for construction services in America remains strong,” said ABC Chief Economist Anirban Basu. “Contractors have been upbeat about sales and employment prospects for months. What changed in December is that a growing fraction of contractors now believe that profit margins will rise during the next six months despite rising costs due to labor shortages and volatile materials prices.”

The ABC member survey was conducted from Dec. 16, 2021, to Jan. 3. The reading is down 0.2 months from November 2021, but up 0.9 months from December 2020.

The backlog revealed a drop in numbers over several sectors, including:

  • the Commercial & Institutional industry, from 8.7 to 8.5;
  • the Heavy Industrial industry, from 9.9 to 7.7;
  • the Infrastructure industry, from 8.6 to 7.3;
  • the Northeast region, from 7.7 to 7.5
  • the South region, from 10.2 to 9.0;
  • the less than $30 million company size, from 7.7 to 7.6;
  • the $30-$50 million company size, from 8.9 to 8.7; and
  • the greater than $100 million company size, from 15 to 10.7.

However, the backlog did rise in a few of the sectors, including:

  • the Middle region, from 8.1 to 8.2;
  • the West region, from 8.0 to 8.4; and
  • the $50-$100 million company size, from 10.2 to 11.3.

“Backlog fell in the infrastructure category, but activity in that category is set to heat up in 2022 as federal infrastructure funds tied to the Infrastructure Investment and Jobs Act of 2021 begin to flow,” said Basu. “Backlog in the heavy industrial category also declined on a monthly basis, but over the past year backlog in this segment has climbed dramatically as manufacturers attempt to address goods shortages and more CEOs consider bringing some of their supply chains back to America.

“Industry backlog could be negatively impacted by elevated steel and other materials prices, with some projects cancelled and others redesigned to shift away from intense steel use.”

Despite the backlog readings, the Associated General Contractors of America recently issued a report that supports the ABC’s confidence findings. According to the results of an AGC-issued survey, 74% of construction firms foresee continued growing demand for most types of projects and plan to hire more workers this year, regardless of supply chain and labor challenges.

The industry outlook was collected via survey. A more detailed version of the survey findings can be found in the Expecting Growth While Coping with the Lingering Impacts of the Pandemic: The 2022 Construction Hiring & Business Outlook.

“Contractors are, overall, very optimistic about the outlook for the construction industry in 2022,” said Stephen E. Sandherr, AGC Chief Executive Officer. “While contractors face challenges this year, most of those will be centered on the need to keep pace with growing demand for construction projects.”

The percentage of respondents who expect a market segment to expand exceeds the percentage who expect it to contract – known as the net reading – in 15 of the 17 categories of projects included in the survey.

Although most contractors are optimistic about the market for highway and bridge construction (57%), they are similarly optimistic about transit, rail and airports projects (51%).

The highest expectations among predominantly private-sector categories, with a net reading of 41% each, are for warehouses and other healthcare facilities, which includes clinics, testing facilities and medical labs. The outlook for hospital construction is also strong, with a net reading of 38%.

Contractors were also optimistic about multifamily residential construction, with a net reading of 32%, and manufacturing construction, with a net reading of 27%. Only two categories received negative net readings, both of -8%: retail and private office construction.

As a result of the industry outlook, AGC also asked respondents to report on their likelihood to expand headcounts at their companies. Of the 74% that expect to hire more workers, 47% reported that they would increase their labor force by 10% or less; 22% said their headcount would grow by 11%-25%; and 5% anticipate an increase of more than 25%.

“The last two years have become increasingly unpredictable, due in large part to the coronavirus and public officials’ varied reactions to it,” said Ken Simonson, AGC’s Chief Economist. “But, assuming current trends hold, 2022 should be a relatively strong year for the construction industry.”

Sandherr added, “Given how many firms are currently looking to hire, many vaccine-hesitant workers will be able to switch jobs instead of taking a shot they have already resisted for over a year.”

Home Builder Confidence Slips

While ABC has recently reported a backlog slip and continued confidence improvements, the National Association of Home Builders reported yesterday (Jan. 18) that it’s market confidence for newly built single-family homes dropped one point to 83.

The NAHB attributes this downward shift to growing inflation concerns and ongoing supply chain disruptions. However, according to the NAHB/Wells Fargo Housing Market Index, the index has hovered at the 83 or 84 level—the same rate as the spring of 2021—for the past three months.

“Higher material costs and lack of availability are adding weeks to typical single-family construction times,” said NAHB Chairman Chuck Fowke. “NAHB analysis indicates the aggregate cost of residential construction materials has increased almost 19% since December 2021. Policymakers need to take action to fix supply chains. Obtaining a new softwood lumber agreement with Canada and reducing tariffs is an excellent place to start."

“The HMI data was collected during the first two weeks of January and do not fully reflect the recent jump in mortgage interest rates,” said NAHB Chief Economist Robert Dietz. “While lean existing home inventory and solid buyer demand are supporting the need for new construction, the combination of ongoing increases for building materials, worsening skilled labor shortages and higher mortgage rates point to declines for housing affordability in 2022.”

© iStock.com / ArtBoyMB

While ABC has recently reported a backlog slip and continued confidence improvements, the National Association of Home Builders reported yesterday (Jan. 18) that it’s market confidence for newly built single-family homes dropped one point to 83.

Earlier this month, several market reports found that construction spending in November had witnessed an increase when compared to October and the same period in 2020, as gains in private residential outweighed decreases in public outlays.

While outlays for construction projects rose 0.4% at a seasonally adjusted annual rate of $1.63 trillion, the Commerce Department noted that residential construction rose 0.9% during the same month and is up 16% over the past year. Year-to-date spending in the first 11 months of 2021 combined increased 7.9% from the total for January-November 2020.

Spending on new single- and multifamily residential projects, along with additions and renovations to existing houses, increased 0.9% for the month and 16.3% from a year earlier. Private nonresidential spending edged up 0.1% from October and 6.7% from November 2020.

New residential construction was first reported to be on the upswing back in October 2021 when the U.S. Census Bureau and the U.S. Department of Housing and Urban Development released new reports on the sector.

According to the report, residential construction in August showed a seasonally adjusted annual rate of 1.62 million units, 17.4% above the pace of a year ago. The rebound was mostly attributed to a 21.6% jump in construction of apartment units, which was reported to have offset a 2.8% fall in single-family construction.

Another sign that residential construction would stay on the rise, the report suggested, was that applications for building permits had seen a 6% increase, reaching a seasonally adjusted annual rate of 1.73 million units. Construction was also reported to be up across the nation, except in Western states.

In a separate survey conducted by NAHB and Wells Fargo, sentiment revealed a slight increase to 76 in September. Although the slight increase ended a three-month-long decrease, the index remained far below the record reading of 90 last November.

Other reports issued by the NAHB revealed an increase in residential remodeling. For the third quarter, NHAB’s Royal Building Products Remodeling Market Index posted a reading of 87, up five points from the third quarter in 2020.

Previous ABC Numbers, Recent Construction Input

In December, ABC released its November Construction Backlog Indicator numbers, reporting an increase having rose to 8.4 from the 8.1 that was recorded in October.

Contractor confidence in sale and profit margins, however, was reported to fall while the index for staffing rose slightly. The ABC member survey was conducted from Nov. 19 to Dec. 3. The reading is up 0.3 months from October 2021 and 1.2 months from November 2020.

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

  • the Commercial & Institutional industry, from 8.3 to 8.7;
  • the Heavy Industrial industry, from 7.6 to 9.9;
  • the Infrastructure industry, from 7.8 to 8.6;
  • the Middle States region, from 6.8 to 8.1;
  • the South region, from 8.7 to 10.2;
  • the less than $30 million company size, from 7.4 to 7.7;
  • the $50-$100 million company size, from 8.9 to 10.2; and
  • the greater than $100 million company size, from 13.2 to 15.

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

  • the Northeast region, from 8.7 to 7.7;
  • the West region, from 8.1 to 8; and
  • the $30-$50 million company size, from 10.2 to 8.9.

As the reports reflect a continued rebound in backlog and confidence, contractor confidence readings for sales, profit margins and staffing levels have also all remained above the threshold of 50, indicating expectations of growth over the next six months.

In October, the backlog reportedly rebounded 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.

As a full comparison, the September Construction Backlog Indicator numbers revealed 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 was down 0.1 months from August 2021, but up 0.1 months from September 2020. The commercial and institutional industry remained unchanged for the month.

   

Tagged categories: Associated Builders and Contractors Inc. (ABC); Associated General Contractors (AGC); Commercial contractors; Contractors; Contracts; COVID-19; Economy; Market; Market data; Market forecasts; Market trends; NA; North America; Painting Contractors; Program/Project Management; Residential contractors; Workers

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