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Dive brief:
- The portfolio fell again in October to 8.4 months due to a strong fall in commercial, institutional and infrastructure worksaccording to a statement Tuesday from Associated Builders and Contractors.
- The group’s construction backlog gauge fell 0.6 months, or 6.7%, from September’s nine-month reading and remains around 4.5% over the past year. The measure is now at its lowest level since the first quarter of 2022, according to ABC.
- Companies with less than $30 million in revenue felt the pinch the most, according to a survey of ABC members conducted Oct. 19-Nov. 2. These smaller contractors lost 1.2 months compared to September’s backlog, from 8.4 months to 7.2 months.
Diving knowledge:
The big contractors, however, continued to pile up work. Companies with annual revenues greater than $30 million reported backlog growth. Companies that had between $50 million and $100 million in sales made the biggest gain, at 1.8 months, amid a environment of booming megaprojects.
The decline among smaller contractors in this month’s report marks the third month in a row global backlog contractionsas credit tightening and high financing costs begin to drag down construction activity.
“While larger contractors continue to benefit disproportionately from a slew of megaprojects across the country, many smaller contractors are feeling the sting of weaker economic fundamentals in struggling commercial real estate segments” , said Anirban Basu, ABC’s chief economist. “Smaller contractors tend to be the most reliant on developer-driven activity. With developers facing higher borrowing costs and more difficulty lining up project financing, backlogs among some contractors are starting to to dissipate”.
Contractors tied to offices, shopping centers and multifamily markets “are likely to have difficulty lining up work,” Basu said. Meanwhile, other specialty contractors in booming sectors such as manufacturing, industrial, infrastructure, data centers and healthcare continue to see healthy backlog levels, Basu added.
“This is precisely what the ABC economists predicted,” Basu said. “This helps explain the declines in ABC’s construction confidence index readings across all three dimensions: sales, unemployment and margins.”
Despite the fall in the ABC confidence index, each of these readings still remains above 50. This suggests that growth in the industry as a whole has yet to enter “contractive territory”, Basu said.
Only the Middle States region of the United States reported gains in its execution portfolio in October, while all other regions of the country reported a decline.
