Dive Brief:
- Backlog inched up in November to 8.5 months due to an uptick in infrastructure projects, according to a Tuesday release from Associated Builders and Contractors, but other sectors continue to struggle.
- The group’s Construction Backlog Indicator moved up 0.1 month in November, marking the first positive shift following three months of decline. The measure still trails last November’s level of 9.2 months, however, and remains 0.8 months lower than July’s cyclical peak, according to ABC, as high interest rates stymie private development.
- Large contractors, or firms with more than $100 million in revenue, shed the most backlog in November, losing about 2.8 months worth of work, according to an ABC member survey conducted Nov. 20 to Dec. 4. On the other hand, firms with under $30 million in sales clawed back about 0.5 months of backlog in November, though that amount is still lower than a year ago.
Dive Insight:
Infrastructure projects posted the only gain in backlog in November, adding about a month's worth of work. For contractors outside of the infrastructure scope, though, backlogs have taken more of a hit.
“A growing number of contractors are reporting declines in backlog,” said Anirban Basu, ABC chief economist. “The interest rate hikes implemented by the Federal Reserve appear to be making more of a mark on the economy. Not only has the cost of capital risen over the past 20 months, but credit conditions are also tightening, rendering project financing even more challenging.”
Commercial and institutional projects in firms’ backlogs remained unchanged in November, while heavy industrial projects lost about 1.4 months in backlog, according to the report.
On the bright side, ABC’s Construction Confidence Index readings for sales and staffing levels both increased in November, while the reading for profit margins fell, according to the report. Still, all three readings remain above the threshold of 50, indicating expectations for growth over the next six months.
Basu also noted that certain interest rates have begun to fall in anticipation of Federal Reserve rate cuts next year, perhaps as early as the first quarter of 2024. That would be good news for the majority of contractors across the board.
But until those rate cuts, Basu expects private-led construction to continue to encounter roadblocks.
“2024 is poised to be weaker from a construction demand perspective for many firms, especially those that depend heavily on private developers,” said Basu. “Those operating in public construction or industrial segments should meet with less resistance on average.”
Only firms in the Middle States region of the U.S. posted gains to its backlog in November, while every other region of the country posted a drop.
