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Dive brief:
- The construction backlog moved up to 8.4 months in June, a 1.2% increase over the previous month, according to a statement Tuesday from Associated Builders and Contractors.
- The small growth in June marks a reversal of a slight Fall of 1.2% in May. However, the overall portfolio level remains 0.5 months below June 2023, or a decrease of approximately 5.6%.
- “The portfolio continues to hold up remarkably well despite high interest rates, inflation and emerging weakness in the broader economy,” said Anirban Basu, chief economist at ABC. “Although contractor confidence regarding the sales outlook and staffing levels fell modestly in June, all three components of the construction confidence index are higher than a year ago.”
Diving knowledge:
The expectation of interest rate cuts from the Federal Reserve later this year, due to lower inflation and cooling economic growth, is a positive sign for the construction backlog, Basu said.
ABC’s construction confidence index readings for sales and staffing levels fell in July, while the reading for profit margins rose, the report said. However, all three readings remain above the 50 threshold, indicating expectations for growth over the next six months.
The job backlog improved in June for all contractors with annual revenue of less than $100 million, the report said. On the other hand, the backlog decreased for the largest contractors, those with more than $100 million in revenue, according to ABC.
All of the decline in backlog observed in the last calendar year is attributable to the middle states and the northeastern regions. In contrast, the backlog in the South and West regions remained unchanged between June 2023 and June 2024, the report said.
“The combination of slowing inflation and softening growth suggests the Federal Reserve could start cutting interest rates as early as September,” Basu said. “This will add to the backlog as some of the softer construction segments, such as office and commercial, benefit from lower borrowing costs and more flexible lending standards.”
