Construction backlog up 10 percent in second quarter

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Associated Builders and Contractors (ABC) reports that its Construction Backlog Indicator (CBI) increased 10 percent in the second quarter of 2011 to an average of 8.1 months, up from 7.3 months the previous quarter. The CBI is 12 percent higher than one year ago. CBI is a forward-looking indicator that measures the amount of construction work under contract to be completed in the future.

“While the increase in construction backlog appears to be good news at first glance, taking a broader look reveals that the rise in the nation’s construction activity may be a reflection of the economic momentum that existed several months ago, but is now beginning to weaken,” said ABC Chief Economist Anirban Basu.

“The nation’s economic recovery has remained fragile since June 2009 and any observed recovery in construction volumes has been tentative,” Basu said. “The events of the last few weeks have had a negative impact on both the overall economy and the nation’s construction sector, with business leaders generally seeking to reduce exposure to risk and investment volatility.

“More specifically, the U.S. economy continues to be pummeled with a sea of constraining factors ranging from rising gas and food prices, to Washington’s stalemate on lowering the nation’s deficit, the downgrade of the U.S. credit rating, Europe’s growing financial crisis and the U.S. financial market turmoil,” said Basu.

“None of this is good news for construction contractors or others hoping for a far ranging, more aggressive economic rebound. Though average construction backlog has been on the ascent in recent months, future surveys are likely to reflect a reversal of the trend and may lead to a chill in the nation’s building recovery,” Basu said.

The South continued to report the lengthiest construction backlog of any major region, with project orders rising 1.87 months during the second quarter compared to one year ago. Backlog for the second quarter of 2010 was 7.43 months compared to the 9.30 months backlog for second quarter of 2011.

“With many large infrastructure projects winding to a close, the largest firms in ABC’s sample have predictably experienced some decline in average monthly construction backlog,” said Basu. “The broadening of the economic recovery during the period prior to the second quarter of 2011 helped support smaller firms, many of which are subcontractors that work on commercial and institutional projects. With the economy weakening in recent months, construction backlog among these smaller firms may begin to decline again.” Read More.

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