Backlog falls below pre-pandemic level, optimism lingers

Dive Brief:

  • After jumping above its pre-pandemic level in September, backlog fell again back below the reading observed in February 2020, according to Associated Builders and Contractors.
  • ABC’s Construction Backlog Indicator declined to 8.8 months in October, largely due to a decline in the commercial and institutional category. Yet the reading remains 0.7 months higher than in October 2021, according to the release.
  • “Contractor survey data indicate that while backlog declined in October, it remains reasonably healthy,” said Anirban Basu, ABC chief economist. “Moreover, the average contractor continues to expect sales, staffing and margins to grow over the next six months. Time will tell whether this lingering optimism is justified.”

Dive Insight:

October’s backlog numbers indicate emerging weakness in the nonresidential construction sector, said Basu.

For instance, the commercial and institutional category posted its largest monthly backlog decline since July 2020. The reading is now 0.4 months below pre-pandemic levels.

“While the industry continues to gain strength from significant funding for public work, pandemic-induced behavioral shifts are translating into meaningful declines in backlog in commercial and institutional segments,” said Basu. “With borrowing costs likely to increase during the coming months and materials prices set to remain elevated, industry momentum could easily downshift further in 2023.”

Nevertheless, ABC’s Construction Confidence Index reading for sales increased in October, further downplaying expectations of a looming recession.

Although readings for profit margins and staffing fell, all three readings remain above the threshold of 50. That indicates expectations of growth over the next six months, said Basu.

“It is also conceivable that certain economists are overly pessimistic,” said Basu. “There is still underlying momentum in the U.S. economy, and some believe that near-term recession is not inevitable.”

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