After A Brief Uptick, Commercial Construction Backlog Falls Again

By Jenn Goodman of Construction Dive,

Summary:

• Associated Builders and Contractors reported Tuesday that its Construction Backlog Indicator fell to 7.5 months in September, a decline of 0.5 months from August’s reading and 1.5 months lower than last year at this time. In addition, the association’s Construction Confidence Index readings for sales and profit margins also decreased.

• The September numbers trend downward in light of the fact that the numbers for backlog, sales, profit margins and staffing expectations all increased in August. 

• “ABC’s survey data indicate that we are in the early stages of a nonresidential construction spending downturn,” said ABC Chief Economist Anirban Basu. “With few exceptions, declines in backlog have begun to accelerate across all markets and regions.”

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In terms of sectors, backlog declined the most in the infrastructure category, yet was higher in the heavy industrial category, a segment that is coming back to due to a combination of an inventory rebuilding cycle, surging e-commerce demand and reshoring of production back to the United States, Basu said.

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Regionally, the declines have been most pronounced in the West, which is largely a reflection of the many challenges facing California’s economy, Basu said.

In addition, more than a third of contractors expect their sales to decline, a dramatic increase from the less than 17% recorded at the same time last year, Basu noted, and more than three-fourths of contractors expect profit margins to be flat or worse over the next six months.

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This negative sentiment is a reflection of the challenges facing contractors right now, he said. These include:

• Fewer bidding opportunities.

• More vigorous competition for work.

• Rising materials costs.

• Tighter lending standards.

• Weakened commercial real estate fundamentals.

• Diminished state and local government financial health.

• Persistent difficulty in identifying and hiring sufficiently skilled and motivated workers. 

Despite ongoing economic uncertainty as the pandemic lingers and winter approaches, staffing levels are expected to grow over the next six months as contractors strive to hold onto their workforce and potentially add to their pool of talent, the economist said.

The ABC findings are in line with recent declines in billings for architectural professionals. The latest AIA Billings Index showed that architecture work is stalled at 40 indicating a decline in firm billings. The score has been unchanged for months, meaning that the share of firms reporting increasing billings has not risen during that time. 

The AIA data indicates that business conditions are the most soft at firms in the Northeast, the region that was hardest hit by the pandemic and subsequent recession. Billings continued to decline at firms in the rest of the country as well, but the pace of that decline has slowed from the low point in the spring, according to AIA.