Dive Brief:
- Construction backlog edged down to 8.3 months in December, a slight decrease from November, according to an Associated Builders and Contractors survey conducted from Dec. 20 to Jan. 6.
- Commercial and institutional backlog declined nearly a full month over the past year, reaching its lowest level since February 2023. These categories, which include projects such as retail, office, hospital and education, contrast with infrastructure backlog, which hit its highest point since August 2023.
- ABC’s Construction Confidence Index continues to show growth expectations for sales and staffing, though profit margins slipped slightly, according to the report.
Dive Insight:
The slight decline in backlog underscores lingering challenges for contractors, particularly in the commercial and institutional sectors, where backlog hit its lowest point in nearly two years.
But contractor confidence paints a more optimistic picture. Builders’ expectations for sales growth are now at their highest level since early 2022. The sentiment reflects contractors’ belief in a near-term pickup in activity, particularly in the first half of 2025.
Nevertheless, ABC’s chief economist also cautioned that momentum could be short lived, should interest rates remain elevated.
“If rates remain higher for longer, backlog may remain subdued, especially in the struggling commercial and institutional category,” said Anirban Basu, ABC chief economist.
The Federal Reserve appears unlikely to continue aggressive rate cuts in 2025, according to its most recent meeting in December. That doesn’t bode well for the backlog overall, said Basu.
“While backlog inched lower in December, contractors broadly expect construction activity to pick up in the first half of this year,” said Basu. “Despite that confidence, the path of interest rates will play a critical role in industry performance in 2025.”
