As backlog rises, so does contractors’ confidence

Dive Brief:

Construction backlog ticked up to 8.4 months in April, a 2.4% increase from the month prior, according to a Tuesday release from Associated Builders and Contractors.
The jump in April marks the second consecutive month of backlog growth, following two months of contraction at the start of 2024. However, backlog still trails the April 2023 level by 0.5 months, according to ABC.
“While there are occasional hints of softness in certain segments and over certain periods, the average contractor continues to report solid backlog,” said Anirban Basu, ABC chief economist. “Time will tell whether this optimism is justified.”

Dive Insight:

ABC’s Construction Confidence Index for sales and profit margins fell slightly in April, while the reading for staffing levels improved, according to the report. However, all three readings still remain above the threshold of 50, indicating expectations for growth over the next six months.

“The Federal Reserve began ratcheting up interest rates more than two years ago but one would not know it based on construction confidence and backlog,” said Basu in the release. “ABC measurements reflect ongoing momentum in the nation’s nonresidential construction sector.”

Backlog grew for contractors with $30 million to $100 million in annual revenues in April, according to the report. On the other hand, monthly backlog declined for the largest and smallest contractors by revenue — those with less than $30 million or more than $100 million in yearly sales — according to ABC.

Yet, on an annual basis — a longer-term gauge — only contractors with $30 million to $50 million in annual revenues have experienced an increase in backlog, according to ABC. All other firm sizes posted declines to backlog over the past 12 months.

“Coming into the year, many expected that interest rates would fall markedly in 2024. Given stubbornly elevated inflation, that will not occur,” said Basu. “Project financing costs are poised to remain higher for longer. Project cancellations and postponements have been on the rise. Moreover, a new set of supply chain issues has emerged, driving up materials costs and prospectively weakening industry margins.”