Dive Brief:

• Construction backlog increased to 8.9 months in April, following a drop in March that sent the reading to its lowest level since August 2022, according to Associated Builders and Contractors.
• Strength in the infrastructure category pushed backlog higher, spurred by a raft of activity in both the Northeast and West. Overall, it was still below its most recent high of 9.2 months, reached in February, and actually fell in the South and Midwest. 
• “Based on ABC member sentiment, one would not be able to discern that interest rates are high, the nation’s banking sector is in tumult, politicians are arguing over the nation’s debt limit and recession fears remain pervasive,” said Anirban Basu, ABC chief economist. “Despite many headwinds and an active news cycle, contractors continue to express confidence in the near term.”

Dive Insight:

ABC’s Backlog Indicator measures the work that contractors have booked, but haven’t yet begun. The association pairs the benchmark each month with its Construction Confidence Index, which polls construction executives about their outlooks for sales, profit margins and staffing over the next six months. 

The reading for sales and staffing moved higher in April, reflecting the somewhat contrarian optimism in the sector that Basu referred to. At the same time, however, the reading for profit margins expectations inched lower, indicating that while contractors expect more work and need to hire more people to complete it, they are feeling the pinch of inflation and higher borrowing and labor costs nonetheless. 

That said, all three readings in the ABC Construction Confidence Index still sit above the threshold of 50, meaning expectations of growth over the next six months remain intact.

“Despite rapidly rising compensation costs, more ABC contractors expect profit margins to expand as opposed to recede over the next six months,” said Basu in the release. “[That’s] evidence of sufficiently strong demand for construction services to support pricing power.”

But signs of a shift are beginning to show, especially as credit conditions continue to tighten. That indicates “weaker times ahead,” specifically for private construction projects, said Basu.

For example, backlog for commercial and institutional projects hovered around the same level, inching slightly lower by a tenth of a month in April. Meanwhile, backlog for heavy industrial construction dropped close to half a month, according to ABC.

The latest Dodge Momentum Index, a benchmark that measures nonresidential planning, also revealed some weakness in commercial construction. The index dropped 5.1% in April largely due to slower commercial activity in the office, hotel and retail sectors, according to Dodge Construction Network.

April’s rebound was predominantly due to infrastructure contractors beginning to take on more public works projects, said Basu. Indeed, backlog in the infrastructure sector increased by almost a full month in April.