Construction backlog no longer expanding

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The Associated Builders and Contractors (ABC) reports that its latest Construction Backlog Indicator (CBI) remained virtually unchanged in mid-summer. Based on a national survey of ABC members, construction backlog stood at 7 months in June and 7.3 months in July – up 20.4 percent from July 2009, but down 1.2 percent from CBI’s historic high of 7.4 months in April 2010.

“Construction backlog is roughly flat in sectors of the economy that heavily depend on private financing and remains elevated for segments that depend on public financing. This is cause for concern because publicly financed construction spending is set to decline sometime in 2011, and beyond,” said ABC Chief Economist Anirban Basu.

“There are no indications, however, that overall construction business volume has begun to shrink; merely that backlog is no longer advancing.”

Basu also pointed out that the current economic recovery is likely to be different than previous recoveries due to rising office vacancy rates, slow job creation and tight credit, meaning construction’s recovery is not guaranteed.

Compared to a year ago, all regions except for the West experienced a rise in construction backlog and the increase has been particularly profound in the Northeast, rising from 5.5 months in July 2009 to 8.7 months in July 2010. The Middle States ended July 2010 with the shortest construction backlog at 6.2 months.

According to Basu, the Northeast is performing well because of its healthier investment banks, higher federal government spending on military bases, and an expanding technology sector. States with ongoing softness in economic activity, such as Arizona, California, Nevada and New Mexico, helped to make the West the only region that hasn’t increased its backlog year over year.

Construction backlog in the commercial and institutional category now stands at 7.1 months, down from 7.2 months the previous three months. In the heavy industrial category, construction backlog slipped from 6.8 months in April to 6.7 months in July but infrastructure backlog has been above 10 months for three consecutive months – the longest stretch for this category in CBI history.

Firms with annual revenue greater than $100 million continue to experience the longest construction backlog at 8 months. Construction backlog for firms in the $50 million to $100 million category now stands at 7.7 months. However, backlog for this group is below the March 2010 level of 8 months. Firms with annual revenue below $30 million have an average construction backlog of 6.5 months – the highest reading for this group in CBI history.

Backlog initially began rising among the largest firms, those with revenues in excess of $100 million per year,” said Basu. “In contrast, smaller firms with annual revenue below $30 million did not begin to experience upticks in construction backlog until early this year – a sign that business improvement tends to become apparent among the largest firms first, and then flows down to smaller construction contractors and subcontractors.”

To read more about CBI click Here.

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