Associated Builders and Contractors (ABC) reports that its Construction Backlog Indicator (CBI) contracted to 8.8 months during the first quarter of 2018, down 9% from the prior quarter. CBI is down 2% on a year-over-year basis.
“The Construction Backlog Indicator hit an all-time high during the fourth quarter of 2017,” said ABC Chief Economist Anirban Basu. “A number of factors pushed backlog lower during the first quarter of 2018, including an extensive winter. Only one region has experienced a decline in backlog on a year-over-year basis: the Middle States, which encompasses the Upper Midwest. There also was a significant uptick in survey participation during the first quarter, which may have helped shape the result. In sum, average backlog remains lofty by historic standards.
“Given improved weather and normal seasonal factors, it is likely that backlog will bounce back during the second quarter. However, the level of improvement may be undermined by a combination of worker shortages and rapidly rising construction materials prices. Despite recent increases in the costs of delivering construction services due to rising human capital and materials costs, there is scant evidence of a decline in demand for construction services,” said Basu.
Highlights by Region
— Backlog in the South fell 8% during the first quarter, but remains 2.9% higher on a year-over-year basis. Large metropolitan areas such as Tampa, Fla., Atlanta, Dallas and Austin, Texas, continue to generate significant construction activity. Expect backlog to remain lengthy as communities impacted by last year’s storms continue to rebuild.
— Backlog in the Northeast fell after expanding for five consecutive quarters. Large cities along the northeast corridor continue to attract commercial investment, including the suburbs of Baltimore. Despite the first quarter decline in backlog, the region’s reading remains elevated by historical standards.
— Backlog in the Middle States is down 12.6% for the quarter (more than a full month) and 14.7% year over year. Weather played a role, but other factors are at work. Tariffs and threats of trade wars impact this region disproportionately given its central role in the nation’s industrial production.
— Backlog in the West surged to its highest level since mid-2014. Rebuilding from prior wildfires likely played a role, but the bigger reason relates to surging technology sectors in San Jose, Calif., San Francisco, Seattle, Portland, Ore., Los Angeles and San Diego.
Highlights by Industry
— Backlog in the commercial/institutional segment fell for the first time since the end of 2016. Despite the 8.8% quarterly decline, backlog in this segment remains 3.2% higher than the same time one year ago. However, this sector is vulnerable to further declines given its significant exposure to rising borrowing costs, higher materials prices and growing concerns regarding product saturation in a number of first-tier American real estate markets.
— Average backlog in the heavy industrial category rebounded during the first quarter, expanding 13.5%. Despite this sizable increase, the segment remains roughly unchanged at historically low levels on a year-over-year basis. Construction spending related to manufacturing has been drifting lower for months. While there have been some highly visible announcements regarding large capital projects in this segment, concerns regarding trade wars are likely to suppress backlog to a meaningful degree.
— Backlog in the infrastructure category drifted back to Earth during the first quarter, declining by more than two months from levels observed during the fourth quarter of 2017. This reading may have been impacted by a sharp increase in survey participation. Weather likely played an even larger role. The expectation is that backlog in this category will expand for the balance of the year as improving state and local government finances spur more investment in education, public safety, highway/street and other publicly financed categories.
Highlights by Company Size
— Large firms—those with annual revenues in excess of $100 million—experienced a sharp decline in backlog. This overlapped neatly with the decline in backlog related to infrastructure. Backlog for these large firms remains higher than any other classification considered in this release.
— Backlog among firms with annual revenues between $50 million and $100 million increased 0.4 months during the first quarter and currently stands at its second highest level since the series began in 2008. This group is heavily impacted by certain construction segments that have experienced little interruption in construction spending momentum.
— Firms with between $30 million and $50 million in annual revenues experienced a sharp decline in first quarter backlog. Enhanced survey participation likely explains part of this result. This group is significantly exposed to the energy sector, which stands to see an uptick in activity given recent trends in oil prices.
— Backlog for firms with annual revenues of less than $30 million increased 0.3 months during the first quarter and remains remarkable steady. This stability is likely the product of a dearth of available subcontractors to do electrical, mechanical, glass installation and other forms of work.
CBI is a leading economic indicator that reflects the amount of construction work under contract, but not yet completed. CBI is measured in months, with a lengthening backlog implying expanding demand for construction services. More CBI charts and graphs are available on abc.org.
Related Stories
Hotel Facilities | Jul 28, 2022
As travel returns, U.S. hotel construction pipeline growth follows
According to the recently released United States Construction Pipeline Trend Report from Lodging Econometrics (LE), the total U.S. construction pipeline stands at 5,220 projects/621,268 rooms at the close of 2022’s second quarter, up 9% Year-Over-Year (YOY) by projects and 4% YOY by rooms.
Codes and Standards | Jul 22, 2022
Hurricane-resistant construction may be greatly undervalued
New research led by an MIT graduate student at the school’s Concrete Sustainability Hub suggests that the value of buildings constructed to resist wind damage in hurricanes may be significantly underestimated.
Market Data | Jul 21, 2022
Architecture Billings Index continues to stabilize but remains healthy
Architecture firms reported increasing demand for design services in June, according to a new report today from The American Institute of Architects (AIA).
Market Data | Jul 21, 2022
Despite deteriorating economic conditions, nonresidential construction spending projected to increase through 2023
Construction spending on buildings is projected to increase just over nine percent this year and another six percent in 2023, according to a new report from the American Institute of Architects (AIA).
Building Team | Jul 18, 2022
Understanding the growing design-build market
FMI’s new analysis of the design-build market forecast for the next fives years shows that this delivery method will continue to grow, despite challenges from the COVID-19 pandemic.
Market Data | Jul 1, 2022
Nonresidential construction spending slightly dips in May, says ABC
National nonresidential construction spending was down by 0.6% in May, according to an Associated Builders and Contractors analysis of data published today by the U.S. Census Bureau.
Market Data | Jun 30, 2022
Yardi Matrix releases new national rent growth forecast
Rents in most American cities continue to rise slightly each month, but are not duplicating the rapid escalation rates exhibited in 2021.
Market Data | Jun 22, 2022
Architecture Billings Index slows but remains strong
Architecture firms reported increasing demand for design services in May, according to a new report today from The American Institute of Architects (AIA).
Building Team | Jun 17, 2022
Data analytics in design and construction: from confusion to clarity and the data-driven future
Data helps virtual design and construction (VDC) teams predict project risks and navigate change, which is especially vital in today’s fluctuating construction environment.
Market Data | Jun 15, 2022
ABC’s construction backlog rises in May; contractor confidence falters
Associated Builders and Contractors reports today that its Construction Backlog Indicator increased to nine months in May from 8.8 months in April, according to an ABC member survey conducted May 17 to June 3. The reading is up one month from May 2021.